Latin America's Shock Resistance
by Naomi Klein, The Nation magazine
In less than two years, the lease on the
largest and most important US military base in Latin America will
run out. The base is in Manta, Ecuador, and Rafael Correa, the
country's leftist president, has pronounced that he will renew
the lease "on one condition: that they let us put a base
in Miami-an Ecuadorean base. If there is no problem having foreign
soldiers on a country's soil, surely they'll let us have an Ecuadorean
base in the United States."
Since an Ecuadorean military outpost in
South Beach is a long shot, it is very likely that the Manta base,
which serves as a staging area for the "war on drugs,"
will soon shut down. Correa's defiant stand is not, as some have
claimed, about anti-Americanism. Rather, it is part of a broad
range of measures being taken by Latin American governments to
make the continent less vulnerable to externally provoked crises
This is a crucial development because
for the past thirty-five years in Latin America, such shocks from
outside have served to create the political conditions required
to justify the imposition of "shock therapy"-the constellation
of corporate-friendly "emergency" economic measures
like large-scale privatizations and deep cuts to social spending
that debilitate the state in the name of free markets. In one
of his most influential essays, the late economist Milton Friedman
articulated contemporary capitalism's core tactical nostrum, what
I call the shock doctrine. He observed that "only a crisis-actual
or perceived-produces real change. When that crisis occurs, the
actions that are taken depend on the ideas that are lying around."
Latin America has always been the prime
laboratory for this doctrine. Friedman first learned how to exploit
a large-scale crisis in the mid-1970s, when he advised Chilean
dictator Gen. Augusto Pinochet. Not only were Chileans in a state
of shock following Pinochet's violent overthrow of Socialist President
Salvador Allende; the country was also reeling from severe hyperinflation.
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
makeover ever attempted, and it became known as a Chicago School
revolution, since so many of Pinochet's top aides and ministers
had studied under Friedman at the University of Chicago. A similar
process was under way in Uruguay and Brazil, also with the help
of University of Chicago graduates and professors, and a few years
later, in Argentina. These economic shock therapy programs were
facilitated by far less metaphorical shocks-performed in the region's
many torture cells, often by US-trained soldiers and police, and
directed against those activists who were deemed most likely to
stand in the way of the economic revolution.
In the 1980s and '90s, as dictatorships
gave way to fragile democracies, Latin America did not escape
the shock doctrine. Instead, new shocks prepared the ground for
another round of shock therapy-the "debt shock" of the
early '80s, followed by a wave of hyperinflation as well as sudden
drops in the prices of commodities on which economies depended.
In Latin America today, however, new crises
are being repelled and old shocks are wearing off-a combination
of trends that is making the continent not only more resilient
in the face of change but also a model for a future far more resistant
to the shock doctrine.
When Milton Friedman died last year, the
global quest for unfettered capitalism he helped launch in Chile
three decades earlier found itself in disarray. The obituaries
heaped praise on him, but many were imbued with a sense of fear
that Friedman's death marked the end of an era. In Canada's National
Post, Terence Corcoran, one of Friedman's most devoted disciples,
wondered whether the global movement the economist had inspired
could carry on. "As the last great lion of free market economics,
Friedman leaves a void. There is no one alive today of equal stature.
Will the principles Friedman fought for and articulated survive
over the long term without a new generation of solid, charismatic
and able intellectual leadership? Hard to say."
It certainly seemed unlikely. Friedman's
intellectual heirs in the United States-the think-tank neocons
who used the crisis of September 11 to launch a booming economy
in privatized warfare and "homeland security"-were at
the lowest point in their history. The movement's political pinnacle
had been the Republicans' takeover of the US Congress in 1994;
just nine days before Friedman's death, they lost it again to
a Democratic majority. The three key issues that contributed to
the Republican defeat in the 2006 midterm elections were political
corruption, the mismanagement of the Iraq War and the perception,
best articulated by Jim Webb, a winning Democratic candidate for
the US Senate, that the country had drifted "toward a class-based
system, the likes of which we have not seen since the nineteenth
Nowhere, however, was the economic project
in deeper crisis than where it had started: Latin America. Washington
has always regarded democratic socialism as a greater challenge
than totalitarian Communism, which was easy to vilify and made
for a handy enemy. In the 1960s and '70s, the favored tactic for
dealing with the inconvenient popularity of economic nationalism
and democratic socialism was to try to equate them with Stalinism,
deliberately blurring the clear differences between the worldviews.
A stark example of this strategy comes from the early days of
the Chicago crusade, deep inside the declassified Chile documents.
Despite the CIA-funded propaganda campaign painting Allende as
a Soviet-style dictator, Washington's real concerns about the
Allende victory were relayed by Henry Kissinger in a 1970 memo
to Nixon: "The example of a successful elected Marxist government
in Chile would surely have an impact on-and even precedent value
for-other parts of the world, especially in Italy; the imitative
spread of similar phenomena elsewhere would in turn significantly
affect the world balance and our own position in it." In
other words, Allende needed to be taken out before his democratic
third way spread.
But the dream Allende represented was
never defeated. It was temporarily silenced, pushed under the
surface by fear. Which is why, as Latin America now emerges from
its decades of shock, the old ideas are bubbling back up-along
with the "imitative spread" Kissinger so feared.
By 2001 the shift had become impossible
to ignore. In the mid-'70s, Argentina's legendary investigative
journalist Rodolfo Walsh had regarded the ascendancy of Chicago
School economics under junta rule as a setback, not a lasting
defeat, for the left. The terror tactics used by the military
had put his country into a state of shock, but Walsh knew that
shock, by its very nature, is a temporary state. Before he was
gunned down by Argentine security agents on the streets of Buenos
Aires in 1977, Walsh estimated that it would take twenty to thirty
years until the effects of the terror receded and Argentines regained
their footing, courage and confidence, ready once again to fight
for economic and social equality. It was in 2001, twenty-four
years later, that Argentina erupted in protest against IMF-prescribed
austerity measures and then proceeded to force out five presidents
in only three weeks.
"The dictatorship just ended!"
people declared at the time. They meant that it had taken seventeen
years of democracy for the legacy of terror to fade-just as Walsh
In the years since, that renewed courage
has spread to other former shock labs in the region. And as people
shed the collective fear that was first instilled with tanks and
cattle prods, with sudden flights of capital and brutal cutbacks,
many are demanding more democracy and more control over markets.
These demands represent the greatest threat to Friedman's legacy
because they challenge his central claim: that capitalism and
freedom are part of the same indivisible project.
The staunchest opponents of neoliberal
economics in Latin America have been winning election after election.
Venezuelan president Hugo Chávez, running on a platform
of "Twenty-First-Century Socialism," was re-elected
in 2006 for a third term with 63 percent of the vote. Despite
attempts by the Bush Administration to paint Venezuela as a pseudo-democracy,
a poll that year found 57 percent of Venezuelans happy with the
state of their democracy, an approval rating on the continent
second only to Uruguay's, where the left-wing coalition party
Frente Amplio had been elected to government and where a series
of referendums had blocked major privatizations. In other words,
in the two Latin American states where voting had resulted in
real challenges to the Washington Consensus, citizens had renewed
their faith in the power of democracy to improve their lives.
Ever since the Argentine collapse in 2001,
opposition to privatization has become the defining issue of the
continent, able to make governments and break them; by late 2006,
it was practically creating a domino effect. Luiz Inácio
Lula da Silva was re-elected as president of Brazil largely because
he turned the vote into a referendum on privatization. His opponent,
from the party responsible for Brazil's major sell-offs in the
'90s, resorted to dressing up like a socialist NASCAR driver,
wearing a jacket and baseball hat covered in logos from the public
companies that had not yet been sold. Voters weren't persuaded,
and Lula got 61 percent of the vote. Shortly afterward in Nicaragua,
Daniel Ortega, former head of the Sandinistas, made the country's
frequent blackouts the center of his winning campaign; the sale
of the national electricity company to the Spanish firm Unión
Fenosa after Hurricane Mitch, he asserted, was the source of the
problem. "Who brought Unión Fenosa to this country?"
he bellowed. "The government of the rich did, those who are
in the service of barbarian capitalism."
In November 2006, Ecuador's presidential
elections turned into a similar ideological battleground. Rafael
Correa, a 43-year-old left-wing economist, won the vote against
Álvaro Noboa, a banana tycoon and one of the richest men
in the country. With Twisted Sister's "We're Not Gonna Take
It" as his official campaign song, Correa called for the
country "to overcome all the fallacies of neoliberalism."
When he won, the new president of Ecuador declared himself "no
fan of Milton Friedman." By then, Bolivian President Evo
Morales was already approaching the end of his first year in office.
After sending in the army to take back the gas fields from "plunder"
by multinationals, he moved on to nationalize parts of the mining
sector. That year in Chile, under the leadership of President
Michelle Bachelet-who had been a prisoner under Pinochet-high
school students staged a wave of militant protests against the
two-tiered educational system introduced by the Chicago Boys.
The country's copper miners soon followed with strikes of their
In December 2006, a month after Friedman's
death, Latin America's leaders gathered for a historic summit
in Bolivia, held in the city of Cochabamba, where a popular uprising
against water privatization had forced Bechtel out of the country
several years earlier. Morales began the proceedings with a vow
to close "the open veins of Latin America." It was a
reference to Eduardo Galeano's book Open Veins of Latin America:
Five Centuries of the Pillage of a Continent, a lyrical accounting
of the violent plunder that had turned a rich continent into a
poor one. The book was published in 1971, two years before Allende
was overthrown for daring to try to close those open veins by
nationalizing his country's copper mines. That event ushered in
a new era of furious pillage, during which the structures built
by the continent's developmentalist movements were sacked, stripped
and sold off.
Today Latin Americans are picking up the
project that was so brutally interrupted all those years ago.
Many of the policies cropping up are familiar: nationalization
of key sectors of the economy, land reform, major investments
in education, literacy and healthcare. These are not revolutionary
ideas, but in their unapologetic vision of a government that helps
reach for equality, they are certainly a rebuke to Friedman's
1975 assertion in a letter to Pinochet that "the major error,
in my opinion, wasto believe that it is possible to do good with
other people's money."
Though clearly drawing on a long rebellious
history, Latin America's contemporary movements are not direct
replicas of their predecessors. Of all the differences, the most
striking is an acute awareness of the need for protection from
the shocks that worked in the past-the coups, the foreign shock
therapists, the US-trained torturers, as well as the debt shocks
and currency collapses. Latin America's mass movements, which
have powered the wave of election victories for left-wing candidates,
are learning how to build shock absorbers into their organizing
models. They are, for example, less centralized than in the '60s,
making it harder to demobilize whole movements by eliminating
a few leaders. Despite the overwhelming cult of personality surrounding
Chávez, and his controversial moves to centralize power
at the state level, the progressive networks in Venezuela are
at the same time highly decentralized, with power dispersed at
the grassroots and community levels, through thousands of neighborhood
councils and co-ops. In Bolivia, the indigenous people's movements
that put Morales in office function similarly and have made it
clear that Morales does not have their unconditional support:
the barrios will back him as long as he stays true to his democratic
mandate, and not a moment longer. This kind of network approach
is what allowed Chávez to survive the 2002 coup attempt:
when their revolution was threatened, his supporters poured down
from the shantytowns surrounding Caracas to demand his reinstatement,
a kind of popular mobilization that did not happen during the
coups of the '70s.
Latin America's new leaders are also taking
bold measures to block any future US-backed coups that could attempt
to undermine their democratic victories. Chávez has let
it be known that if an extremist right-wing element in Bolivia's
Santa Cruz province makes good on its threats against Morales's
government, Venezuelan troops will help defend Bolivia's democracy.
Meanwhile, the governments of Venezuela, Costa Rica, Argentina,
Uruguay and Bolivia have all announced that they will no longer
send students to the School of the Americas (now called the Western
Hemisphere Institute for Security Cooperation)-the infamous police
and military training center in Fort Benning, Georgia, where so
many of the continent's notorious killers learned the latest in
"counterterrorism" techniques, then promptly directed
them against farmers in El Salvador and auto workers in Argentina.
Ecuador, in addition to closing the US military base, also looks
set to cut its ties with the school. It's hard to overstate the
importance of these developments. If the US military loses its
bases and training programs, its power to inflict shocks on the
continent will be greatly eroded.
The new leaders in Latin America are also
becoming better prepared for the kinds of shocks produced by volatile
markets. One of the most destabilizing forces of recent decades
has been the speed with which capital can pick up and move, or
how a sudden drop in commodity prices can devastate an entire
agricultural sector. But in much of Latin America these shocks
have already happened, leaving behind ghostly industrial suburbs
and huge stretches of fallow farmland. The task of the region's
new left, therefore, has become a matter of taking the detritus
of globalization and putting it back to work. In Brazil, the phenomenon
is best seen in the million and a half farmers of the Landless
Peoples Movement (MST), who have formed hundreds of cooperatives
to reclaim unused land. In Argentina, it is clearest in the movement
of "recovered companies," 200 bankrupt businesses that
have been resuscitated by their workers, who have turned them
into democratically run cooperatives. For the cooperatives, there
is no fear of facing an economic shock of investors leaving, because
the investors have already left.
Chávez has made the cooperatives
in Venezuela a top political priority, giving them first refusal
on government contracts and offering them economic incentives
to trade with one another. By 2006 there were roughly 100,000
cooperatives in the country, employing more than 700,000 workers.
Many are pieces of state infrastructure-toll booths, highway maintenance,
health clinics-handed over to the communities to run. It's a reverse
of the logic of government outsourcing: rather than auctioning
off pieces of the state to large corporations and losing democratic
control, the people who use the resources are given the power
to manage them, creating, at least in theory, both jobs and more
responsive public services. Chávez's many critics have
derided these initiatives as handouts and unfair subsidies, of
course. Yet in an era when Halliburton treats the US government
as its personal ATM for six years, withdraws upward of $20 billion
in Iraq contracts alone, refuses to hire local workers either
on the Gulf Coast or in Iraq, then expresses its gratitude to
US taxpayers by moving its corporate headquarters to Dubai (with
all the attendant tax and legal benefits), Chávez's direct
subsidies to regular people look significantly less radical.
Latin America's most significant protection
from future shocks (and therefore from the shock doctrine) flows
from the continent's emerging independence from Washington's financial
institutions, the result of greater integration among regional
governments. The Bolivian Alternative for the Americas (ALBA)
is the continent's retort to the Free Trade Area of the Americas,
the now-buried corporatist dream of a free-trade zone stretching
from Alaska to Tierra del Fuego. Though ALBA is still in its early
stages, Emir Sader, a Brazil-based sociologist, describes its
promise as "a perfect example of genuinely fair trade: each
country provides what it is best placed to produce, in return
for what it most needs, independent of global market prices."
So Bolivia provides gas at stable discounted prices; Venezuela
offers heavily subsidized oil to poorer countries and shares expertise
in developing reserves; and Cuba sends thousands of doctors to
deliver free healthcare all over the continent, while training
students from other countries at its medical schools.
This is a very different model from the
kind of academic exchange that began at the University of Chicago
in the mid-'50s, when hundreds of Latin American students learned
a single rigid ideology and were sent home to impose it with uniformity
across the continent. The major benefit is that ALBA is essentially
a barter system in which countries decide for themselves what
any given commodity or service is worth rather than letting traders
in New York, Chicago or London set the prices for them. That makes
trade less vulnerable to the kind of sudden price fluctuations
that have hurt Latin American economies before. Surrounded by
turbulent financial waters, Latin America is creating a zone of
relative economic calm and predictability, a feat presumed impossible
in the globalization era.
When one country does face a financial
shortfall, this increased integration means that it does not necessarily
need to turn to the IMF or the US Treasury for a bailout. That's
fortunate because the 2006 US National Security Strategy makes
it clear that for Washington, the shock doctrine is still very
much alive: "If crises occur, the IMF's response must reinforce
each country's responsibility for its own economic choices,"
the document states. "A refocused IMF will strengthen market
institutions and market discipline over financial decisions."
This kind of "market discipline" can only be enforced
if governments actually go to Washington for help. As former IMF
deputy managing director Stanley Fischer explained during the
Asian financial crisis, the lender can help only if it is asked,
"but when [a country is] out of money, it hasn't got many
places to turn." That is no longer the case. Thanks to high
oil prices, Venezuela has emerged as a major lender to other developing
countries, allowing them to do an end run around Washington. Even
more significant, this December will mark the launch of a regional
alternative to the Washington financial institutions, a "Bank
of the South" that will make loans to member countries and
promote economic integration among them.
Now that they can turn elsewhere for help,
governments throughout the region are shunning the IMF, with dramatic
consequences. Brazil, so long shackled to Washington by its enormous
debt, is refusing to enter into a new agreement with the fund.
Venezuela is considering withdrawing from the IMF and the World
Bank, and even Argentina, Washington's former "model pupil,"
has been part of the trend. In his 2007 State of the Union address,
President Néstor Kirchner (since succeeded by his wife,
Christina) said that the country's foreign creditors had told
him, "'You must have an agreement with the International
Fund to be able to pay the debt.' We say to them, 'Sirs, we are
sovereign. We want to pay the debt, but no way in hell are we
going to make an agreement again with the IMF.'" As a result,
the IMF, supremely powerful in the 1980s and '90s, is no longer
a force on the continent. In 2005 Latin America made up 80 percent
of the IMF's total lending portfolio; the continent now represents
just 1 percent-a sea change in only two years.
The transformation reaches beyond Latin
America. In just three years, the IMF's worldwide lending portfolio
had shrunk from $81 billion to $11.8 billion, with almost all
of that going to Turkey. The IMF, a pariah in countries where
it has treated crises as profit-making opportunities, is withering
The World Bank faces an equally precarious
future. In April Correa revealed that he had suspended all loans
from the Bank and declared the institution's representative in
Ecuador persona non grata-an extraordinary step. Two years earlier,
Correa explained, the World Bank had used a $100 million loan
to defeat economic legislation that would have redistributed oil
revenues to the country's poor. "Ecuador is a sovereign country,
and we will not stand for extortion from this international bureaucracy,"
he said. Meanwhile, Evo Morales announced that Bolivia would quit
the World Bank's arbitration court, the body that allows multinational
corporations to sue national governments for measures that cost
them profits. "The governments of Latin America, and I think
the world, never win the cases. The multinationals always win,"
When Paul Wolfowitz was forced to resign
as president of the World Bank in May, it was clear that the institution
needed to take desperate measures to rescue itself from its profound
crisis of credibility. In the midst of the Wolfowitz affair, the
Financial Times reported that when World Bank managers dispensed
advice in the developing world, "they were now laughed at."
Add the collapse of the World Trade Organization talks in 2006
(prompting declarations that "globalization is dead"),
and it appears that the three main institutions responsible for
imposing the Chicago School ideology under the guise of economic
inevitability are at risk of extinction.
It stands to reason that the revolt against
neoliberalism would be in its most advanced stage in Latin America.
As inhabitants of the first shock lab, Latin Americans have had
the most time to recover their bearings, to understand how shock
politics work. This understanding is crucial for a new politics
adapted to our shocking times. Any strategy based on exploiting
the window of opportunity opened by a traumatic shock- the central
tenet of the shock doctrine-relies heavily on the element of surprise.
A state of shock is, by definition, a moment when there is a gap
between fast-moving events and the information that exists to
explain them. Yet as soon as we have a new narrative that offers
a perspective on the shocking events, we become reoriented and
the world begins to make sense again.
Once the mechanics of the shock doctrine
are deeply and collectively understood, whole communities become
harder to take by surprise, more difficult to confuse-shock-resistant.
Naomi Klein is the author of many books,
including her most recent, The Shock Doctrine: The Rise of Disaster
Capitalism. Visit Naomi's website at nologo.org