f.

i'l-u

Lrror, I, ,ro, ' lL1{ t

,

i'i,.i

SLAMMING THE DOOR

ON HISTORY
CRISIS IN POLAND, ^ MASSACRE IN CHINA A
| live in a Poland that is now free, and I consider Mitton Fried-

man to be one of the main intetlectual architects of my coun-

try's [iberty.

-Leszek Balcerowicz, former finance minister of Po[and, November

20061

There's a tertain chemicaI that gets released in your stomach when you make ten times your money- And it's addictive.

-Wil.Liam Browder, a U.S. money manager, on investing

Poland in the early days of capitalism2

in

We certainty must not stop eating for fear of choking.

-Peopte's Daily, Ihe officiaL state newspaper, on the need to continue free-market reforms after the Tiananmen Souare
massacre3

,
,

,, .I Soviet barrriers corning dor.vn. It w:rs Lech Walcsa, a laid-

Ilrt' Bcrlin Wall fell, beconring the clefinirrg synrbol of the col'l ( l<lmmunism, there was another irnage that held out the

ON SLAMMING THE DOOR

HISTORY

217

216

THE SHOCK DOt]IItINE

hancllebar n-roustache off electrician with a i"i"1511"Tii,:H#i, climbing over a

and disheveled ltlrirt

tUl;f
th ou s an

the price ::::ffii,, n"r,ri".t,ion to raise urrvr!vvv---aII ;"0'";*:::1"'*:,;1"i The worker,',t,ik; was rhe workers' strike ;;;';;tl;illli Prllrrtd v ich had ruled against the Moscow-controlled v!rr4l 1!"---No year:'-N: one KIIcw For for thirty-five vears' """

cl

1i?;,; """r';;;" J::";;q *:j ;l::Ji'i, ffi ;*,:::': :Tlfi:ili,lf "u'

s

and factothe countryk :il"t'shipvardsmembersSoliclarity spread through y""'' it had 10 million rr, s rvith ferocious the right population' Having won half of Poland's *"'ftt"' '*" ,l,,,ost a five-day

'ntti''ittint-"

or w o rke

rs

"

"

to

p r. Ic

tt

:T

:-': :-l:','r" of meat'

making concrete headway: t,, lrtrgait'l, Solidarity started *o"""y.in the run'ring of factories' ,,,r1< week instead tf t*'l"a idealized working that worshipped an l,,,.tr of livi'g in , .;;;, denounced the wo'kers' Soliiarity members
, l r 's
r

government'

,Ji"i'i"

became on' tt'tt As the strike wore 'l'tipyo'd

i""'i-n"lT::lu^Yl?::.Y;:I H:;ll! ni ior." them to w'lk? fire o'r the sirikers:::.:::1'":fi;;;,;;; \i%"ld thev te'
a,

dcr pocket of popular

tt

ot racywithina'''a.'tho'lt'^;;;'"[.',,t"*lf ,::'J;i:,?ttiltl;,t;; work lives contro*ed

but abused atttt"l ,,' l,tion ",''d b*tnlrtv liir" o*tt 111"1:"iffi,:1iilff::"13i to remote ano r,, llrc people of Poland but and self-determination desire for democracv lr r';r'ow. All the Solidarity being pourecl into local by one-party rule was ,,,1,1.,rcssed Communist of *J*bers from the
1,

ffilitl1ff:'Ji;"il;;;; 'i;'
form that union

""'*trl

"()rr:i. l'rrlr.

sparking

' -"''t""Ut"

"00,,*n*',"t"*lTJ,:;."::::f;,T:Tffl:I#J'I:l['l *ru ffi*:",1'T[*il.Ll#::,nffi:.H::'-:: l',li and t

i

\loscow recognizecl the movement

the Soviet l',:rstcrn empire' Inside

as

yet k serious +hreelvetto the most ^^-:^,,. threat

,t

rights activist'' ,,,,', l.rrgely from human

.. ' :.-. adcr' with ; iilil ffi. ^"'*ifv ^--l ,',;+h its leadcr, l,r'thh |;'Ji|;:;;1T':H
ancr
Ie

r'r''l

l,tr,,rl r.ight. n.tt

r,

',,11's

of

Walesa' "1vnl.r",

,"fflT

J,[], ;ilTffi #il

was

in t:l: t:.i" tttne with the aspirati'rrs then thirty-six, was "^ ^1 r' r*r ^^mm,rnion.,,w.
r

'h"i;';;;"tlt" base'* Even more threatentng' ' I rrrist rhetoric, t''^u" Uit'-' the party's
rrttl
f

,,,,1

,..1 d.st in

capit"ri""--tf'Jy;;;;"ts.with should'":t"t1li?-' who

p"opl"

of whom were on the Poas easily be dismissed soua*lqli;;;;"tt'couldn't hammers in their hands

Union' opposition

*':::tt]"t^":

-"11

".'r

;: :T: :':,1",Y; il
role that

a tt]1.;;;; *m: ffi 1,,',:l#I: :il;y:"iltii1lru un;;l; :l,l: shipyard' It catlxrlit th" po*"rf.,l tr' vv"'..,but also tu blue-collar credentials i ; th i s i' pr ay e d ":,

':l"l' faith ilr-br i :."""::,":'#'1,1fl as a r,. -i:: :: 'lr11 :Tl:t;"r*':?il."JilT"',;;'i;; y":,:1.''

i'

;t

rrr;+t .olioi.,.

fr',,'nurte{
:

where the party was not: clemocratic vision was everythini .,,1', l;rlitv's it was centralized; participatory ,t r" rrrtthoritarian; dispersed where million members had the power its 10 lr, r, it rvas bureauc-tit' they ^"U a standstill' As Walesa taunted' r', l,r,rrg Poland's be compelled to

courase, rining

"il ;Tff:JTl-Jffi,, ;* *.,,

wooclen crucinx

up'"

ffiffi

I p^ttl i''i 'llrr' I' i,,l' tween Soltdarlty anu twe en S otidarity,,''a,t" !u"""',-'.lj' ::::l l'Lt''t"" of |ohil ]]i Il'" t:;;il" "a giant souventr::: ',i-"ti'rn walcsa t'^l lris 1rr'r

ffi:iilJi;;;;
'"

J o:"T:::jlil::",:ill.:il'fi """;;'ii ""1o"t land'nark labor :rgrccrrr'l'rrr

I

;:;il"::5il: *nHH.I;ll offici' "0"""a

the Soliclarity

"t;;;';; battles"'but we rvill not ',',,'lrl lose their political will'build^strlet us to build tanks, 1e ,,' I lJccause tt o""pi" *""t we
i
,

rr rtlr

*:1":?

'

' the system' We are ",,, lrow to beat even Party lnsl( lers to democracy inspired commitment few evil men were re",,lr,lilrity's as to think tliat a ,' l" l. "Once t ;:;;;*e

,\

cr

n".k,

*iif;;*htf'^::,i:iilliil,Jf:wav
pttptll

ff

miration was rltttual; ' *r,crc witlt SolidrrritY

po'c t.lcl

"

' i

" ,{
'

works lrLrrr'-'-N0" lwhich no doubt

th popul'ar Sotidaritv :t"q"i: li^ :ntO better in Potish)'

was "sociatism-YES'

lts

218

THE SHOCK DOCTRINE

SLAN/|\/ING THE DOOR ON

HISTORY

2'19

sponsible for the errors of the party," Marian Arendt, a member of t central comnittee, told a Polish newspaper. 'Now I no longer hi such illusions. T'here is something wrong in our whole apparatus,

lrrrrrclreds

injured when miners in Katowice fought back with

axes

,,,,,lcrowbars."6

our entire structure."6 In September 1981, Solidarity's members were ready to take movement to the stage. Nir-re h'ndred polish workers gat 'rext once again in Cdarisk for the union's first national congress.

Solidarity was forced underground, but during the eight years of 1,,,lrtc-state rule, the movement's legend only grew. h'r 1983, Walesa
,'.,.,,rwarded the Nobel Peace Prize, although his activities were still

solidarity tr-rrned into a revolutionary movement with aspirations take over the state, with its own alternative economic and politi program for Poland. The Solidarity plan stated, .,We demand a sr governing and democratic reform at every management level arrcl new socioeconomic system combining the plan, self and the market." The centrepiece was a radical vision for the
state-run companies, which employed millions of Solidarity n bers, to break away from governmental control and become dr

,,',lricted and he could not accept the prize in person. "T'he Peace l'r rzc laureate's seat is empty," the representative frorn the Nobel ' ,,nrrnittee said at the ceremony. "Let us therefore try even harder to
lr

,lcrr to the silent speech from I'ris empty place."

llrc empty
' '
\

r\

space was a fitting metaphor because, by that time, one seerned to see what they wanted in Solidarity: the Nobel

,,rrrmittee saw a

[lan who

"espoused no other weapon than the

cratic workers' cooperatives. "The socialized

i,,,,, r:ful strike weapon."e'fhe left saw redemption, a version of so, ,,rlrsrn that was not tainted by the crimes of Stalin or Mao. T'he right rrr t'vidence that Comrnunist states would meet even moderate ex-

enterprise,,'

would provoke a crackdown. Others argued that the

program stated, "shor_rld be the basic organizational unit in the omy. It sho.ld be controlled by the workers council representing collective and should be operatively run by the director, appoi, through competition and recalled by the council."T Walesa this dema'd, fearing it was such a challenge to party control tlrat
move

needed a goal, a positive hope for the future, not iust an enemv. lesa lost the debate, and the economic program became official s darity policy.

l'r' \sions of dissent with brutal force. The human rights movement , rrr lrrisoners jailed for their beliefs. The Catholic Church saw an ally rr',rrrrst Comrnunist atheism. And Margaret Thatcher and Ronald ll, ,rr|rrr saw an opening, a crack in the Soviet arrnor, even though ',, 'lr, Lrr-ity was fighting for the very rights that both leaders were doing tl' rr lrcstto stamp outathome. The longerthe ban lasted, the more ,rr .r'ftrl the Solidarity mythology became. 1,,
of the initial crackdown had eased, and Polish were once again staging huge strikes. This time, with the ','rl,t'rs , r r,.{)nrf in free fall, and the new, moderate regime of Mikl'rail Gorl, r, lrt'\'

Ilr l9BB, the terror

Walesa's fears of a crackdown turned out to be well fouur Solidarity's mounting ambition frightened and infuriated M

Under intense pressure, Poland's leader, General Woiciech fa ski, declared martial law in December l98l. Thnks rolled thrr
the snow to surround factories and mines, Solidarity,s members rounded up in the thousands, and its leaders, including Walesa,
arrested and imprison ed. AsTime reported, "soldiers and police

in power in Moscow, the Con'rmunists gave in. They legalized ,,'l*l;rrity and agreed to hold snap elections. Solidarity split in two:
11,115
ir

now the union and a new wing, Citizens'Committee Soliin the elections. The two bodies were intr, rrbly linked; Solidarity leaders were the candidates, and because il', , lt'ctoral platform was vague, the only specifics of what a SolidarI
rl

tlr, 11

r', lhat would participate

force to clear out resisting workers, leaving at least seven dearl

Ir rI r r

,',,,'

rc n'right look like were provided by the union's economic proWalesa himself didn't run, choosing to maintain his role as

220

THE SHOCK DOCTRINF

SLAMN4 ING

THE DOOR ON HISTORY 221

maneuvering behind the scenes, had the post of prime minister fi by Thdeusz Mazowiecki. He had little of walesa's charisma. but the editor of the Solidarity weekly newspaper, he was considerecl
of the movement's leading intellectuals.

miliating for the Cornmunists and glorious for Solidarity: of the seats in which Solidarity ran candidates, it won 260 of them.* Wal

head of the union wing, but he was the face of the campaign, w ran under the slogan "With us, you,re safer.',r0 The results werc

llr,'old order and the sudden election sweep had been shocks in
in a matter of months, Solidarity activists went from hidfrom the secret police to being responsible for paying the salaries ,'l llrose same agents. And now they had the added shock of discoverrrr;i that they barely liad enough money to make tl-re payroll. Rather
llrcrnselves:
rrrri

tlr,rrr

building the post-Communist economy they had dreamed of,

llr. ruovement had the far more pressing task of avoiding a complete lr, ltdown and potential mass starvation. Solidarity's leaders knew they wanted to put an end to the state's
like grip on the economy, but they weren't at all clear about what ',,rrlil replace it. For the movement's militant rank and file, this was llr,' chance to test their economic program: if the state-run factories
, r,,,

The Shock of Power

ing products that, with no buyers in sight, were destined to rot warehouses.ll For Poles, the situation nlade for a cruel entrv i democracy. Freedom had finally come. but few had the ti*e or inclination to celebrate because their paychecks were wortlr They spent their days lining up for flour and butter if there happc to be any in the stores that week. All surnmer following its triurnph at the polls, the Solidarity ernment was paralyzed by indecision. The speed of the collapse
* The etections, white a breakthrough, were stiI rigged: from the outset, the munist Party was guaranteed 65 percent of the seats in partiament,s lower I and sotidarity was atlowed to contest onty the remainrng ones. Neverthetess, wrn was so sweeping that soridarity gained effective controt of the government,

mously (and prophetically) declared. When Solidarity took of debt was $40 billion, inflatior-r was at 600 percent, there were sc Food shortages and a thrivir-rg black market. Many factories were r

As Latin Americans had just learned, authoritarian regimes hav6 habit of embracing democracy at the precise moment when their ec nomic projects are about to implode. poland was no exception. , Communists had been mismanaging the economy for clecades, n ing one disastrous, expensive mistake after another, and it was at point of collapse. "To our misfortune, we have wonl" Walesa

,\r'r(' converted to workers' cooperatives, there was a chance they ,,,rrlcl become economically viable again-worker management ,,,rrltl be more efFcient, especiallywithoutthe added expense of party l'rr('ilucrats. Others argued for the same gradual approach to transilr,rl [1121 Gorbachev was advocating at the time in Moscow-slow exl',rrrsion of the areas in which supply-and-demand monetary rules .r1'1'lr'(more legal shops and markets), combined with a strong public
,,

lor rnodeled on Scandinavian social democracy.

lIrt as had been the case in Latin America, before anything else ,,'rlrl happen, Poland needed debt relief and some aid to get out of
,l ,

rrrrrnediate crisis. In theory, that's the central mandate of the IMF':

1,r,,r'irling stabilizing funds to prevent economic catastrophes.

',"lr,lrrrity, which had just pulled off the Eastern Bloc's first demo, r,rl rt ollster of a Communist regime in four decades. Surely, after all tlr, ( lold War railing against totalitarianism behind the Iron Curtain l','l,rrrr['s new rulers could have expected a little help. .l,r such aid was on offer. Now in the grips of Chicago School .,,,111;111i515, the IMF and the U.S.'l'reasury saw Poland's problems i1,1,,11911 the prism of the shock doctrine. An economic meltdown and
i lr,
,

r',,r, rr)rnent deserved that kind of lifeline

If any it was the one headed by

r\r)'

debt load, compounded by the disorientation of rapid regime

222

THF SHOCK DOCTRINE

SLAI'/N4

lNG THE D00R 0N HIST0RY 223

for privatization. The pote'tial for rapid profits fo, thor. who got
first was tremendous.

change, meant that Poland was in the perfect weakened position accept a radical shock therapy program. A'd the financiar stakes wr even higher than in Latin America: Eastern Europe was untouclt by Western capitalism, with no consumer market to speak of. All of most precious assets were stilr owned by the state-prime

rrr,l l-ris colleague David Lipton, a staunch free-market economist

tlr,'rr working at the IMF, to set up an ongoing Poland mission. When

",,liclarity
rr

swept the elections, Sachs began working closely with the

rovcment.

candicrah
i

I'hough he was a free agent, not on the payroll of either the IMF'
,,r llrc U.S. government, Sachs, in the eyes of many of Solidarityk top ,,llrc'ials, possessed almost messianic powers.
Lrr ts
l,

$l country facing economic collapse ancr

stnrcturing.

pay the debts accumulated by the regime that hai bannecr lnirrd "r,a its members-and it offered only l9 miilion

Confident in the knowledge that the worse things got, the nror! Iikely the new government would be to accept a total conversio' t unfettered capitalism, the IMF let the country fall deeper and deepel into debt and inflation. The White House, under George H. W, Bush, congratulated Solidaritv on its triumph agai'st cori,rmu,risrn but nade it clear that the u.S. administratio. expected Soridarity trt

With his highJevel con-

in Washington and legendary reputation, he seemed to hold the

r to unlocking the aid and debt relief that was the new govern,,r, rrt's only chance. Sachs said at the time that Solidarity should sinr1,lr refuse to pay the inherited debts, and he expressed confidence tl,,rl he could n'robilize $3 billion in support-a fortune compared rtlr what Bush had offered.la He had helped Bolivia land loans with 'r tl,, IMF and renegotiated its debts; there seemed no reason to doubt
help, I'rowever, came at a price: for Solidarity to get access t,' Sachs's connections and powers of persuasion, the government lrrsl neecled to adopt what becarne known in the Polish press as "the lrs Plan" or "shock therapy." ".r, ll rvas an even more radical course than the one imposed on Bolrr r;r: in addition to eliminating price controls overnight and slashing .'rl,sidies, the Sachs Plan advocated selling off the state mines, ship,,,,,|s and factories to the private sector. Itwas a direct clash with Soir,l,rrily's economic program of worker ownership, and though the rrrrvcmilt'S national leaders had stopped talking about the contro', rsial ideas in that plan, they remained articles of faith for many Sol,,l,rlity rnembers. Sachs and l,ipton wrote the plan for Poland's shock tlr.r;rpy transition in one night. It was fifteen pages long and, Sachs , l.rirrred, was "the first time, I believe, that anyone had written down
,,

in

in aid, a pittance i, 1 need of funcramentar re.

""llu",

role. Soros and Sachs travelecl to Warsaw together, and as Sachs 'r" calls' "l told the Solidarity group a'd the polish government
worrld be willing to become more involved to help;ddress the <lct,;r. ening economic crisis."ll soros agreed to cover the costs for sacrr,

the "Indiana Jones of Economics.,,l2 Sachs's work in Poland had begun before Solidarity's election vir. tory, at the request of the communist gover.ment. It started witrr s one-day trip, during which he met with the communist governnrr:nt and with solidarity. It was George soros, the billionaire financier arul currency trader, wl"ro hacl enlisted sachs to play a more
hancrs.rr

debate

nounced Sachs-who stiil looked like a member of the Harvrrrd

Ma.vering rrt how he could serve as economic shock croctor to half a dozen co'rr. tries and still hold dow' his teaching job, the Los Angeres Times

was in this cor-rtext that feffrey Sachs, then thirty-fo'r, started working as an adviser to solidarity. since his Borivian exploits, rlre hype surro.nding Sachs had reached feverish levels.

It

1.trer,

team-

th.r

',nrprehensive r , rtrket economy."l5

plai'r for the transformation of a socialist economy to

S:rchs was convinced that Poland had to take this "leap across the rrr',titutional chasm" right away because, in addition to all its other

221

THE SHOCK DOCTRINE

SLAN4MING THE DOOR ON

HiSTORY

225

or the verge of e.tering hyperinflation. or-rce trrirt happe'ed, he said, it would be ..f'nda're'tal breakclown . . jrrst . pure, unmitigated disaster."l6 He gave several one-on-one seminars explaining the plan to key Solidarity officials, some lasting up to foui hours, a'cl he also acldressrrl Polandt elected officials as a group. Many of Solidarity's leaclcrs did.'t like Sachs's ideas-the novement had formed in a rev'lt against drastic price increases imposed by the communists-arrrd .ow sachs was telling them to do trre same on a far more sweepirrg scale. He arg.ed that they could get away with it precisely b."r,,re "solidarity had a reservoir of trust of the public, which was absolutcly
problems, it was phenomenal and critical."lT
Solidarity's leaders hadn't planned to expend that tr.st on policicr that would cause extreme pain to tlieir rank and file, but the ye,tn
explairrs,

"and said,'l've all,r.sidents. "He came tlp to me," Goni recalled, \\,rvs wanted to meet a Bolivian, especially a Bolivian presidcnt, be, .ilrse they're always making us take this verv bitter medicirre, saying ,,,il have to do it because this is what the Bolivians dicl. Now I knor.v
,

'

,,r, you're not that bad a gr,ry,

but I sure used to hate you."'2t) ln Sachs's talk of Bolivia, he failed to mention that in order to push

tl,rorrgh the shock therapy program, the government had imposed a ,t.rlc of ernergency and, on two separate occasions, kidnapped and ir'
t, rrrr.:d

the union leadersl-rip-rnuch

as

the Communist Party secret

under a state 1,,,lice had snatchcd and imprisoned Solidarity's leaders ,,1 .urergency rrot so long before. What was tnost persuasive, many now recall, was Sachs's promise rl,rt if they followed his I'rarsh advice, Poland would cease being ex,, plional and become "nortrtal"-as in "a nonnal Fluropean count,r " lf Sachs was right, and tl'rey really could fast-forward to becoming I r.orr'try like France or Germany sinrply by hacking off the struclrrrCs of the old state, wasn't tl're pain rvorth it? Wry take an increrrr|rrtal rotrte to change that cotrld well fail-or pioneer a new third

spe.t in the in jail and in exile had also alienated thcrrr '.derground, from their base. As the Polish editor przemyslaw wielgosz
tl-re

port came not from the factories and industrial plants,

top tier of the movement "became effectively cut

ofi.

. . their str;r

nik' one of Solidarity's most celebrated i.tellectuals. Sachs did waver: "This is good. This r'11 *orl.,,*te

church'"18 The leaders were also desperate for a quick fix, even i{ il was pai.ful, and that was what sachs was offering. "will this work? That's what I want to know. willthis work?" demanded Adam Miclr.

b.t

tlre

,',,r'-when this insta-Europe version wirs right there, calling

,,,rr.lrs

out?

predicted t]-rat shock therapy would cause "mornentary dislocaIrorrs" 3s prices spiked. "Br-rt then they'Il stabilize-people rvill know
'r

''l

lrcre they stand."21

Sachs often held up Bolivia as the model that poland should emrrlate, so ofte' that the Poles grew tireci of hearing about ,,1

would love to see Bolivia," one soliclarity leader told a reporter at tl*, time. "I'm sure it's very lovely, very exotic. I just clon't want to see B.. livia ltere." Lech walesa cleveloped a particularly acute antipathy
Bolivia, as he admitted to Gonzaro Sdnchez cre Lozada (Go,ri)wherr tl're two men met years later at a summit, when they were botlr * Michnik later observed bitter[y that "the worst thing about communism

the place.

t.

formed an alliance with Poland's newly appointed finance Irrrrister, Leszek Balcerowicz, an econonist at the N4ai[r School of l'l;rrrning and Statistics in Warsaw. Little was known of Balceror'vicz's 1,,,lilical leanings when he was appointed (all economists were offi, ,, rlly socialist), bgt it would soon become clear that he saw himself as ,rr lronorary Chicago Boy, having porecl over an illegal Polish cditior-r ,,1 l'i-ieclman's Free to Choose. It helped "tt-' inspire n-re, and many ,,tlrt'r"s, to dream of a futttre of freedom during the darkest years of
,

Ilc

,,rrrrnunist rule," Balcerowicz later explained.22

comes after."

is what

l,'ricdman's fur-rdanentalist version of capitalism was a long way lr,,rrr what Walesa I'rad been promisir-rg the country that sumrner. He

226
was

THE SHOCK DOCTRiNE

StAN/N/ING THE DOOR ON

HISTORY

227

Weschler.2a

is poo., ,.urt " country. We siniply cannot take the shock,,, a leading cloctor and lrealth care advocate tord trre Mw york:er journalist Lawre'ce

than capitalism, that will reject everything that is evil in capitalism,,,rl Many did arg'e that tl"re sudden fix that Sachs and Balcerowic! were selli'g was a myth, that, ratrrer t'an jolting poland into heartrt and normalcy, shock therapy would create an even bigger mess of poverty and deindustrialization tl'ran before. "This

was going to fi'd that n-rore generorl third way, which he describecl in an i'teiview with Barbara warters al "a mixture. . . . It won't be capitalism. It will be
a system that is bettet

still insisti.g that porand

One floor below, a team of doctors examined Mazowiecki and adrrrinistered an electrocardiogran'r.

It wasn't a I'reart attack or

poison.

llre prin-re minister was sirnply suffering from "acute fatigue," from l,,o little sleep and too n'rucl'r stress. After almost an hour of tense unrtainty, he reentered the parliamentary chamber, where he was lirccted witl'r thunderous applause. "Excusc me," said the bookish \lirzowiecki. "The state of n-ry health is the same as the state of tl're
r

rlish ecor-roil-ry."26

At long last, the verdict: the Polish ecorlomy would be treated for
rls

own acute fatigue witl-r shock therapy, a particr-rlarly radical course

For three rnonths after their historic victory at trre polls and thcir abrupt tra.sitio. from outraws to lawmakers, the Solidarity inner cir. cle-debated, paced, yelled a'd chain_smoked, unable to decide what to do. Every day, the country fell deeper into economic crisis.
A Very Hesitant Embrace

,l

it that would include "privatization of state industry, the creation ,,1 ir stock exchange and capital narkets, a convertible currency, and ,r slrift from heary industry to consumer goods production" as well as 'l,trdget cllts"-as fast as possible and all at once.27

ll lhe dream of Solidarity began with Walesa's energetic vault over llrc steel fence in Gdarisk, then Mazowiecki's exhaustedly succumbrrrg to shock therapy represented the end of that dream. Finally, the ,lt'cision came down to money. Solidarity's rnembers did not decide

workers' cooperatives? midclle

September lz, 1989, the polish prime minister, Thdeusz Mazowiecki, rose before the first elected iarliarnent. The Solidarity caucus l-racl at last decided what it ru, goi,rg to do about the eco'. ot-ny, but only a handf.l of people k,-r"w ihe final decision-was it the sachs Plan, the Gorbachev gradr,ralist route or Solidarityt pratform of
Mazowiecki was on the verge of announcing the verdict, but in t'e his rnornentous speech, before he could confront the cou'. 'f
FIe

on

cans?

started to slvay, clasped the lecterr-r and, according to o,_,. *i",n"rr, "grew pale, gasped for breath and was heard to mutter r-rnder his breath, 'l'm not feeling too well."'25 His aides whisked him out of thc chamber, leavi'g the 4r 5 deputies to tracre rumors. was it a heart artack? Had he been poisoned? By the Communists? By the Ameri-

try's most burning question, sornething went terribly wrong.

run economy was wrongheaded, l,rrt their leaders became convinced that all that mattered was wirr,rrrrg relief from the Communist debts,and immediately stabilizing tlrc currency. As Henryk Wu jec, one of Poland's leading advocates of ,,roperatives, put it at the time, "lf we had enough tine, we migl'rt , rt'rr be able to pull it off. But we don't have time."28 Sachs, mean''lrile, could deliver the money. He helped Poland negotiate an rLilcenent with the IMF and secured some debt relief and $l billion t,, stabilize the currency-but all of it, particularly the IMF funds, *:rs strictly conditional on Solidarity's submitting to shock therapy. lbland became a textbook example of Friedman's crisis theory: the , lrsorientation of rapid political change con'rbined witl'r the collective l, :rr generated by an economic meltdown to make the promise of a ,lrrick and magical cure-however illusory-too seductive to turn
tlrrrt tl'reir vision for a cooperatively

228

THE SHOCK DOCTRINE

SLAN/MING THE DOOR ON

HISTORY

229

racv. lo

thetical to the Solidarity vision in both content and form becar*e Poland was in what he dubbed a period of ,,extraordinary politics,,, He described that condition as a shortJived winclow in which rrro rules of "norr-nal politics" (co'sultation, discussion, debate) do rr,t apply-in other words, a democracy-free pocket within a demrc.

talizing on the emergency environment was a deliberate strategy_B way, like all shock tactics, to clear away the opposition. H"" .x. plained that he was able to push through policies that
were

nessing these semi-psychotic reactions you can no longer expcct people to act in their own best interests when they're ,o drrori"nt.d they don't know-or no longer care-what those interests are.,,ze Balcerowicz, the finance minister, has since admitted

Bortnowska, a human rights activist, described the vc, locity of change in this period as .,the difference between dog yean and human years, the way we're living these days . . . you sta'ri wit

down.

Hali'a

tlrt'face of the moon. Suddenly it seemed that the whole world was lrr rrrg tl're same kind of fast-forward existence as the Poles: tl-re Soviet llrrion was on the verge of breaking apart, apartheid in South Africa .r't'rned on its last legs, authoritarian regimes continued to crumble
rrr

Latin America, Eastern Europe and Asia, and long wars were com-

that callr

to an end fron-r Namibia to Lebanon. Everywhere, old regimes rising in their place had yet to take 'r,'rc collapsing, and the new ones
rrr;1

,rlll)e.

a'ti.

Poland, all three phenomena convergecr

"Extraordinary politics," he said, "by definition is a period of vcry clear discontinuity in a country's history. It could be a period of vcry deep economic crisis, of a breakdown of the previous institutiorral system, or of a liberation from externar domination (or end of war).
lrt

a period of "in transition," as liberated countries came t,, be called in the nineties-suspended in an existential inl,r'lweenness of past and ftrture. According to Thomas Carothers, a l,.rrlcr in the U.S. government's so-called denocracy-promotion ap,, r.rrtus. "in the first half of the 1990s . . . the set of 'transitional counlrrt's' swelled dramatically, and nearly I00 cor-rntries (approxin-rately 'tt in Latin America,25 in Eastern Europe and the former Soviet llrrion, 30 in sub-Sal'raran Africa, l0 in Asia, and 5 in the Middle l'.,rst)were in some kind of dramatic transition from orre model to ana few years

Within

it seemed as if half the world was in

, rtraordinary politics," or

'lIre r."t?

Many were claiming that all of this flr-rx, and tl're fall of real and

in l9g9."r

extraordinary circumstances, rre was able to shunt aside due proccr{,i and force "a radical acc-eleration of the legislative process"
shock therapy package. to pass tlre
32

Because of thrxe

was ioyously dismantled, the city was turned into a festival of possibil. ity and the MTV flag was planted in the rubble, as if East B".ii,, ,.,re

nary politics" attracted considerabre interest among wasrringr,rr economists. And no wonder: only two rnonths after poland irrr, nounced that it would accept shock therapy, something happenccl that would change the course of history a'cr invest polandt exrcrr. ment witl-r global significance. In November r989, the Berrin wrll

In the early nineties, Balcerowicz's theory about periods "extraorrri. of

,rr'l:rphorical walls, would lead to an end of ideological orthodoxy. I r, c'cl from the polarizing effects of dueling supcrpowers, countries ,,uld finally be able to choose the best of both worlds-some hybrid " ,'l political freedorn and economic security. As Gorbachev pr-rt it, \l:rrry decades of being mesmerized by dogma, by a rule-book apl,',,rrch, I'rave had their effect.'Ibday we want to introduce a gen,
r r r

rc[y creative spirit."]a

lrr Chicago School circles, sucl"r talk of mix-and-match ideologies

,',rs nret with open contempt. Poland had clearly shown that this kind
',1 t lraotic transition opened up a window for decisive men, actit-tg ,,' rllly, to push through rapid change. Now was thc n'roment to con-

,,

rl former Conmunist countries to pure Friedmanisn'r, not

sorr'te

rrrrrrf,rel Keynesian compromise. The trick, as Friedrnan hacl said,

230
was

THE SHOCK DOCTRINE

SLAMMING THE DOOR ON

HISTORY

231

for Chicago School believers to be ready with their solutionl when everyone else was still asking questions and regaining thcir
bearings.

,'\'cryone else had already transcended to a celestial "posthistorical" | ?e t'lillle.'"

'l'he
wat

liberalism."
such."35

to an 'end of ideology' or a convergence between capitalism ancl s* cialism . . . b.t to an unabashed victory of economic and politicnl

the university of chicago. The occasion was a speech by Frarrcir Fukr-ryama titled "Are We Approaching the End of History?"* l,irt Fukuyama, then a senior policy maker at the U.S. State Departmcrt, the strategy for advocates of unfettered capitalism was clear: clorr,t debate with the third-way crowd; instead, preemptively declare vic. tory. Fuk.yama was convinced that there should be no abancl'rr. ment of extremes, no best of both worlds, no splitting the differeur,e, The collapse of communism, he told his audience, was leadir-rg "rr't

A sort of revival meeting for those who embraced this worldvicw was held in that eventful winter of l9g9; the location, fittingly,

argun-rent was

a magnificent example of the

democracy

Much as the IMF had ,"t'lked privatization and "free trade" into Latin America and Africa ,rrrrler cover of emergency "stabilization" programs, Fukuyama was rr,u,trying to smuggle this same highly contested ager-rda into the i'r,r-democracy wave rising up from Warsaw to Manila. It was true, as
,rroiclance honed by the Chicago School.

l'rrkuyama noted, that there was an emerging and irrepressible con,, rrsus that all people have the right to govern themselves demo-

,r,rlically, but only in the State Department's most vivid fantasies rr.rs that desire for democracy accompanied by citizens' clamoring l,,r 111 system that would strip away job protections and ""otromic ,
,rrse flloss layoffs.

It

was not ideology that had ended but "historv

ur

The talk was sponsored by fohn M. Olin, longtime funder of Milton Friedman's ideologicalcrusade and bankroller of the bo.rn in right-wing think tanks.36 The synergy was fitting since Fukuy.rrrH
was essentially restating Friedman's claim that free markets arrtl free people are part of an inseparabre project. Fukuyama took trrat thesis into bold new terrain, arguing that deregurated markets in trro

there was a genuine consensus about anything, it was that for 1r.,1)le escaping both left-wing and right-wing dictatorships, democr,r, r' rneant finally having a say in all ma jor decisions rather than hav,,';isomebody else's ideology imposed unilateraily and with force. In
,,llr, r words, the universal principle that Fukuyama identified as "the

ll

,,,rcreignty of the people" included the sovereignty of the people to , lr,rose how the wealth of their countries would be distributed, from

tl',

economic sphere, combined with liberar democracy in the politi*rl sphere, represented "the end point of mankind's ideoloeicill evolution and . . . final form of human government."rt D"-o.]"u..v

,,',1 lrospitals.

late of state-owned companies to the level of funding for scl'rools Around the world, citizens were ready to exercise their
irries, at last.

l,rr,l-won democratic powers to become the authors of their national

,

l,

.,1

with modernity, progress and reform. Those who objected to the merger were not just wrong but ',still in history,', as F.ukuyama prrt it, the equivalent of being left behind after trre Rapture, siuce

and radical capitalism were fusecr not only with each other but als'

lrr 1989, history was taking an exhilarating turn, entering a period

,'l rit'nuine openness and possibility. So it was no coincidence that

|
'l.rryama,
r r

from his perch at the State Department, chose precisely

I I r.

'

i,1

I r roment to attempt to slam the history book shut. Nor was it a cor( lclrce that the World Bank and the IMF chose that same volatile

* The lecture formed the foundation for Fukuyama's book rhe End of Historyand rhl Last Man, pubtished three years tater.

, rr lo unveil the Washington Consensus-a clear effort to halt all

lr,, rrssion and debate about any economic ideas outside the free,,,.rrl.ct lockbox. These were democracy-containment strategies,

SLAMMiNG

IHE

DOOR ON

HISTORY

233

232

THE SHOCK DOCTRINE

designedtourrdercutthekindofunscriptedself-determinatitrrrll''l the Clri' ''r" *"r,"",td always hacl been, the greatest single threat to
School crusade.

rd," Friedman recalled of his audiences in Beiiing and Shanghai'

ls ccntral messaqe was

"how much better ordinary people lived in lirlist than in communist countries."le The example he held up llong Kong, azone of pure capitalisrn that Friedn'ran had long

The Shock of Tiananmen Square came in ltrr ' One place u here Ftrkuyama's bold Prollouncemettt place in Fclrr.' "' dlscredlting was China. Fukuyama's speech took exploded ir r ll' ' 1989; two ,r'tontl'ts later' a pro-democracy movement protests and sit-ins in Tiananmen Square' Fukttt jing,
r'
I

red for its "dvnamic, innovative character that has beer-r pro'ecl by personal liberty, free trade, low taxes, and minimal governrl intervention." He clain-red that Hong Kong, despite having no locracy, was freer than the United States, since its government
icipated less in the economy.+o

with mass

hal

reforms" were clain-red that de''rocratic and "free market

il ltr '

"".

l,iicdman's definition of freedom,

in which political

freedoms

process, ilrpossible to pry apart' Yet

in China' the governmettl lr'"1 dot. pr."irely that: it was pushing hard to deregulate wagcs 'rr"l it was fiercely tl' l' prices ancl expand the reach of the nlarket-but The demorrr'1" mined to resist calls for elections and civil liberties. but many oPl)l )""1 tors, on the other hand, den'randed democracy,
r

irrcidental, even unnecessary, colnPared with the freedom of unricted commerce, conformed nicely with the vision taking shape tlrc Chinese Politburo. Tl're party wanted to open the economy to te ownership and consumerisrn while maintair-ring its own grip plan that ensured that once the assets of the state were

l)ower-a

a fact lirrl"' I' the government's moves toward unregulated capitalism' prcss ltr left or-rt of the coverage of tl're movement in the Western were not 1rt" China, clemocracy and Chicago School economics the barrit;r'l' I'rand in I'rancl; they were on opposite sides of

ioned off, party officials and their relatives would snaP Llp the best and be first in line for the biggest profits. According to this verr <lf "transition," the same people who controlled the state under rrrnunism would control it under capitalism, while enioying a subArrtial upgrade in lifestyle. The model the Chinese governrnent
rrrded to ernulate was not the United States but something much to Chile under Pinochet: free markets combined with ar.rthoriiitn political control, enforced by iron-fisted repression. F'rom the start, Deng clearly understood tl'rat repressior-r would be

ceecling

surrotrndir tg Tiananmen Square' led by Derrg' In the eally l980s, the Chinese government' then

\'

what had just lr''1' aoping, was obsessed with avoiding a repeat of in Polar-rd, where workers had been allowed to fo.r' '.''

p;.i

monopoly lr"l'l i.rclependent novement that challenged the party's to prolt ' on power. It was not that China's leaders were committed formetl tl" ing the state-ownecl factories and farm communes that
I

was enthusirr'lt' foundation of the Communist state' In fact' Deng economy 'r cally committed to converting to a corporate-based

tcial. Under Mao, the Chinese state had exerted brutal control the people, dispensing with opponents and sending dissidents for rrcation. But Mao's repression took place in the narne of the rs and against the bourgeoisie; now the party was going to
I

comn-rittedthat,inlgS0,hisgovernmentinvitedMiltonFriedmrrrrl" ptolr " cone to China ancl tutor hundreds of topJevel civil servants, thc"rr of free-market sors and party economists in the fundamentals l" "All were invited guests, who had to show a ticket of invitatiorr

rch its own cotrnterrevoiution and ask workers to give up many of ir benefits and secr-rrity so tl'rat a n-rinority could collect huge profIt was not going to be an easy task. So, in l983' as Deng operred

the country to foreign investment and reduced protections for rs, I're also ordered the creation of the 400,000-strong People's

231

STANIN/ NG THE DOOR ON

THE SHOCK DOCTRINE

HlSIORY

235

quasl-ring 'r Armed Police, a new' roving riot squad charged witl'r Accordrrrl' signs of "economic crimes" (i'e', strikes ar-rd protests)' Armed l'ol,' ' the chlna historiafr Maurice Meisner, "The People's its arscr'rl kept American trelicopters and electric cattle prods in And,.several units were sent to Poland for a[rtiriot training"-'"r'lr''"
t

lrr the presence of official state n-redia, Friedman met for two hrrrrrs witlr Zhao Ziyang, general secretarry of the Communist Party, Br wcll as witl'r liang Zerr'in, then party secretary of tl're Shanghai (lorrrrnittee and the future Chinese president. Frieclman's message to echoed the advice he had giver-r to Pir-rocl-ret wl'ren the Chilean f tarrg
ptoicct was on tl-re skids: dor-r't bow to the pressr-rre and dor-r't blir-rk.
trtplrasized the importance of privatization ancl free n-rarkets, ar-rd

dtt"", they studiecl the tactics tl'rat had been used against Solidarity +l Poland's period oF rnartial law Many of Deng's reforns were slrccessful and popular-farr''' '

"l
of

returned t'r ll' hacl more control over tl-reir lives, and con-rmerce [IeBSUrcs llr'rr cities. But in the late eighties, Deng began introdr-rcing in the citit were distinctly unpopular, particularly among workers r' price controls were lifted, sending prices soaring; iob securitv ' ineqtullrl" eliminated, creating waves of unemployment; and deep new Cllrrr" in the were opening up between the winners and losers rr'' By 1988, the party was confrot-tting a powerful backlash and w:ls rrr"" reverse son-re of its price deregulation' Outrage forced to nepolisr' mounting in the face of the party's defiant corruption and

llheralizing at one fell stroke," Friedman recalled. In a memo to the lerrcral secretary of the Communist Party, Friedmar-r stressed that

initial steps of refrttnr have been dramatically successful. China can nake further drafft*tic progress by placing still further reliance on free private
frilrkets."43

ntorc, not less, shock tl-rerapy was needed. "China's

Slrortly after I'ris return to the U.S., Friedman, remembering the

heHt he

had taken for advising Pinochet, wrote "or-rt of sheer devilry" lclter to the editor of a student newspaper, denouncing his critics their double standards. He explained that he I'rad just spent twelve

ManyChinesecitizenswarrtedmorefreedominthemarket,brrl..' rrrr,, for_;, ir,"r"asir-rgly looked like code for party officials turning of the assets ll' t business tycoons, as many illegally took possession
had previously managecl as bureattcrats'

in China, where "I was rnostly the guest of governmer-rtal enti" and had met with Communist Party officials at the highest level.

I llrese meetir-rgs had provoked no human rights outcry on Amerir rrniversity carrpuses, Friedman pointed out. "Incidentally, I gave
'isely the same advice to both Chile and Cl-rina." He conclr,rded lsking sarcastically, "Sl'rould I prepare myself for an avalanche of :sts for having been willing to give advice to so evil a governt?"+a

tt'' With the free-market experiment in peril, Milton Friedmarr the Ctrir''rr"' once again invitecl to pay a visit to China-much as when tl'reir' ;'r" Boy, ,,i.1the piranhas had enlisted his help in I975' high-profilc r r"rt gr"- l-tad ,p"rk..l an internal revolt in Chile'az A
boost Olr rr' ' from the world-famous gurlr of capitalism was iust the

A few months later, that clevilish letter took or-r sinister overtones, as

"reformers" needed. tember

(lhinese government began to emr-rlate many of Pinochet's most

rnous tactics.

the rage sitrtttt' ' beginning to look ancl feel like Hong Kong' Despite "ottr l" 'll' ing at the grass roots, everythirrg they saw served to confirm

in s''l' when Friedn'ran ancl his wife, Rose, arrived in Shanghai I988, they were clazzled by how quickly mainland Chirrl '' '

crhnan's trip did not have the desired resr-rlts. Tl"re pictr-rres in
s did

tl-re

:ial papers of the professor offering l-ris biessir-rg to party bureau-

momcrrl irr1h" po*.r of free markets." Friedrnan described this

"the most hopeftrl periocl of the Chinese experiment'"

not succeed in bringing the public onside. In subsequent rths, protests grew more detern-rined and radical. The most visible

236

THE SHOCK DOCTRINE

SLAMN4 ING THE DOOR ON

HISTORY

237

str il ' ' symbols of the opposition were the demonstrations by student in Tiananmen Square. 'Ihese historic protests were alnrost ttlr''' ' tween llr( )r l( I rl sally portrayecl in the international media as a clasl'r be

ct agenda, which it could do only by rolling over the bodies of

protesters?

Or

shor.rld

it

bow to the protesters' demands for

idealistic stuclents who wanted western-style democratic frectl,",' Conrttrr'r" and old-guarcl authoritarians who wanted to protect the Tiananulcrr l' state. Recently, another analysis of the meaning of

trocracy, cede its monopoly on power and risk a major setback to cconomic proiect?
I

Sotne of the free-market reformers

within the party, most notably

'

while Prrltr"' emerged, one that challenges tl're mainstream versioll |\ l " Friedmanism at the heart of the story. This alternative narrativt ing aclvancecl by, an-rong others, Wang Hui' one of the organiztr" "t protests, ancl now a leading Chinese intellectual of wlr'rt the tqSq

rcral Secretary Zhao Ziyang, appeared willing to gamble on nocracy, convinced that econon'ric and political reform could still eornpatible. More powerful elements in the party were not willing lrrke the risk. The verdict came down: the state would orotect its tornic "reform" program by crushing the demonstrators
'l'lrat was the clear message when, on May 20, 1989, the govern-

( )r'i' ' known as Chiua's "New L,eft'" In his 2003 book, China's Nsw explains that tl're protesters spanned a huge range of Clrirr' ' Wang socieiy-not iust elite r-rniversity students but also factory wotl" lr' " small entreprenetlrs and teachers. What ignited the protests' "Ievolutiotr,tr, calls, was popular discontent in the face of Defrg's econonic changes, which were lowering wages' raising PrlcL\ 'rrr'l ,,a crisis of layoffs and unenploynent."45 Accorclirrti l"

causing

Wr',g,;'Th.se changes were the catalyst for the 1989 social molrilr" ' tlon. " .I he clernorrstratiorrs were nol againsl ecotlotnic' rcforttt ;t. ' ' refcrr-r,'.l they were against the specific Friedmanite nature of the
higl-rl1 their speed, ruthlessness and the fact that the process was
I r r

nt of the People's Republic of China declared martial law. On Itc 3, the tanks of the People's Liberation Army rolled into the rsts, shooting indiscriminately into the crowds. Soldiers stormed buses where student demonstrators were taking cover and beat rr with sticks; more troops broke through the barricades protect'l'iananmen Square, where students had erected a Goddess of lrocracy statue, and rounded up the organizers. Similar cracktook place simultaneously across the country 'l'lrere will never be reliable estimates for how many people were
rs

and injured in those days. The party admits to hundreds, and

r

,t

democratic.Warrgsaysthattheprotesters'callforelectionsant||'., dissent' \\ l"r speecl-r were intimately connected to this economic r"lr i.oue the clen"rancl for denocracy was the fact that tl're party was 'r rtl' rr ing through changes that were revolutionary in scope' entirelv l"r out popular consent. 'fhere was, he writes, "a general reqltcsl

time put the number of dead at between two nd and seven thousand and the number of iniured as high as y thousand. The protests were followed by a national witch hunt irrst all regin're critics and opponents. Some forty thousand were
itness reports at the
,

thousands were jailed and many-possibly hundreds-were

ruted. As
:ssion

process:tr"l clemocratic means to supervise the faimess of the reform "atlre reorgartizatiorr of social benefits clrrtr,, These <ler-nands forced the Politburo to rnake a definite

in Latin America, the government reserved its harshest for the factory workers, who represented the most direct

'Ihe choice

and comrnr:nisur,

was not, as was so often clain-red, between dem(tt''" ' or "reform" versus the "old guard." It was a 1t,""

its complex calculation: Should the party bulldoze ahead with

lr"

to deregulated capitalism. "Most of those arrested, and virtulll wl'ro were executed, were workers. Witl'r tl're obvious ain'r of rizing the population, it became a well-publicized policy to systically subfect arrested individuals to beatings and torture," Maurice Meisner.48

238 IHE SHOCK L]O(]IR

F-or tl-re

NE

SLAN/I'/ NO IHE DOOR ON

HISTORY

239

most pirrt, ihe massacre was cortered in the westeilr 1rr, another exa[iple of Cori'rnrunist brutality: itrst as Mao trad u'iP"l ti' I'ris opponents ciuring tl-re Cultulal Revolutioll' llow Dcrrg
'

acccpt it cluietlv or Fir,,rnts and workers, tl-rey would eithcr h:rve to fgrr'llrc wrath of the:rn.ny ar-rd tl'rc secret police. And so, with the
pulrlic in a state of raw terror, Deng ramnted through liis nlost sweePIttli It'lbrn-rs yet.

Butchcr of Beijir-rg," crr-rshed his critics under the watchful , ', tl Mao's giant portrait. A Watt street lournal headline clainrt'ri ..china,s l{arsh Actions'I'hreaten to Set Back fthcl 1O-Ycar l{,1,,,' f)rive" -as if De.g was an eneny of those refortls al-rcl l.rot tfici r "''' t' comrnittecl clefer-idcr, determined to take them irlto bolcl rlor "'
r

lk'lirre 'l'iananlrlen, he had been forced to ease off some of the lltrrrt' painful rneastucs; three rnonths after the Inassacrc, he Ltrought flu'rn back, and l-re inrplencnted several of Friednan's otlrer reconlhrlrrrlirfions, including price deregulattior-r. For Wang Ilui' there is an plrlrorrs reason why "market refortns that ltad failed to be imple-

t()rv.

Five clays after the bloody crackdoul'I, Deng addressed tltc rr'rl'' tvt, 1" ancl maclc it perfectly clear that it lvasn't Comltlltlrisln hc tecting witir his crackclown, but capitalisrn. Afler disrrtissing tl r, 1',' testers as,'a large qr,rantity of the dregs of society," china's plcsr,l,,,r
'

coltllritilteltt to econontic sl-rock theral>i'. l" tl' wor{, this was a tesi, t'td wc passed," Deng sairl, aclcling, "Perll,;, ' rl,"'' bad thing will errable us to go aheaci with refonn and the operr policy at a more steady, better, even a faster 1>ace' ' ' ' We lr'tr' " bee' wro'g. T'|cre's nothing wrollg with tl-re four cardinal prirrt r1,1,
reaffir'r-red the party's
l

'

late l9B0s just happened to have been cornpletcd irr llr,' 1rost-1989 enviroument"; the rcasolt, he u'rites, "is that the violFrr, ,' of 1989 served to check the social upl-reaval brouglrt about by lhir process, and the new pricing systern finally took shape."t2 The dtllk of the lnassacrc, in other words, rnade shock therapy possible. lrr the threc years immediately following the blooclbath, Chir-ra *rr,, r'r'acked open to foreign investnlcut, with special export zones !rrrrslr.ucted throughout tl-re country. As l-rc annour-rced these new inifir'rrlt'cl

in

tl-re

'

llrrlivcs, Der-rg reminded the country that

"if

necessaryr every possible

of economic refornrl. If there is anytl-ring atniss, it's that tl'resc

*
5

ples l-ravel't been tlr orou ghly i n-rplenrentecl'"

(l

Pr "

''
,

'

fttt'rrrrs will be adoptecl to elininate any turrnoil in the fttture as soon dl rl lras appeared. Martial law, or even more severe tllethocls, may be

china scholar a'd io.r'alist, sun'narizccl I r, Xiaoping's choice: "After the lnassacre of 1989, he in effect sirr,l ' will not stop economic refonn; we rn'ill in eflect halt politicrrl '' orville Schcll,
a
. tonlr. "il

'

llrlrotluced."*53 ll was this wave of reforms that turned China into the sweatshop of

the rest of the Politbr-rro, tl're free-ilrarket possib i I rt ' l" were now limitless. Jr.rst as Pinochet's ierror had cleared ttre strct revolutionary char-rge, so'l'iananmen paved the wav for a trr,lr',1 For Deng
ar-rcl
'
I

for contract factories for virtually No country offered rnore lucrative t'r'ry rnultir-rational on the plarret. t,lrrrlitions than Chir-ra: low taxes ar-rd tariffs, corruptible officials ar-rd,
dr,' world, the preferred location

transfornration free

frorl

fear of rebellion.

if life grew harcltr l"'

Ilnsl of all, a pler-rtiful low-wage workforce tl-rat, for Inanv years, risk dernanding clecent salaries or the most ba,lorrld be unwilling to {llr lvorkplace protections for fear of the rnost violent rcprisals.

*Denghadsomenotabledetenders'Afterthemassacre'HenryKissingerWTOll. "No government in the world w"' op-ed arguing that the party had no choice for eight week have tolerated having the main square of its capitaI occupied
tens of thousands of demonstrators. . . . A crackdown was therefore inevitabt|

t A., the New York University anthropotogist David Harvey notes, it was onLy after "southern tour" of China, that the futt llsrrlrnmen, when Deng went on his famous government was put behind the opening to foreign trade and forfurr c of the centraI , !l0rr direct investment."

2AO

THE SHOCK DOCTRINE

SLAMMING THE DOOR ON

HISTORY

211

Forforeigninvestorsandtheparty'ithasbeenawit'r-winirrt;ttr;'' billiorr""' ment. According to a 2006 study, 90 percent of China's l',rrt' (calculatecl in Chinese yuan) are the childrelr of communisl ,' officials. Roughly twenty-r'rir-re hundred of these party scions-Lt',," of tlr, "' as.,the princelings"-control $260 billion.5a It is a mirror revolr"" poratist state first pioneered in Chile under Pinochet: a
their p' ' "' cloor between corporate and political elites who combine
'

rllrte used the gloves-off rnethods of terror, torture and assassinaresult was, from a n'rarket persPective, an unqualified success' crisis and rapid change ftt l,olr["rd, where only the shock of economic ltarnessed-and there was uo overt violer-rce-the effects of the 'k cventually wore off, and the results were far more ambigr'rous'
r, lhc

but t,olrrnd, shock therapy rnay have been imposed after elections,
nrirtle a mockery of the democratic process since

to eliminate workers

political force' Today' this "'l nlttllrrrr Iaborative arrangement can be seen in the way that foreign lo 1'' tional media and technology companies help the chinese state
as an organized

it directly con-

Web SCrrrt l' on its citizens, ancl to make sure tl'rat when students do "clemoc"" t on phrases like "Tiananrnen Square Massacre," or even

crl with the wisl-res of the overwfielmir]g maiority of voters who cast their ballots for Solidarity. As late as 1992, 60 percent of still opposed privatization for hear,1, industry. Defending his unrrrlar actions, Sachs claimed I're had no choice, likening his role to
of a surgeon in an emergency room' "When a gLly comes into the

nodocumentsturnup...Thecreatiot-roftoday'smarketsociellrrr wang I 1,, ' not the result of a seqllence of spontaneous events," writes
"but rather of state interference and violence'"5' One of the truths revealed by Tiananmen was the stark sintilrrrrt' Clrit''r"' between the tactics of authoritarian Communism and l" School capitalism-a shared willingness to disappear oPPonerrl" blank the slate of all resistance and begin anew'

nclgcncy room and his I'reart's stoppecl, you iust rip open the ster-

irnd you clon't worry about the scars that you leave," he said' a l'lrc iclea is to get the guy's heart beating again' And you make y mess. But you don't have any choice'"57 lhrt once Poles recovered from the initial sLrrgery' they had ques-

Il

rs about

Despitethefactthatthemassacrehapperredjustmonthsaflt.r|'. with painftrl ,''"1 I,,ud .,,,.o.,r"ged chinese officials to push forward "alr unpopular free-market policies, Friedman never did face "' ' rl t"r,"tt" of protests for having been willing to give advice to so t'r '

both the doctor and the treatment' Shock therapy in rrd dicl not cause "mornentary dislocatior-rs," as Sachs hacl prein inrd. It caused a full-blown depression: a 30 percent reduction lrial procluction in the two years after the first rou'd of reforms.
Ir

tht r'l gou"rttr1l.r'rt."'And as usual, he saw no connection between ,, ui." h. had given and the violence required to enforce it. wl-rilc " '
tp
", "n "*"mple

sovernment cutbacks and cheap imports flooding irr' unemployrl skyrocketed, and in 1993 it reached 25 percent in some areas-

to hol't 'r demning Cl-rina's use of repression, Friedman continued of "the efficacy of free-market arrangemeuts itr 1'r"
moting bolh prosperity and Freedom.'''6 In a strange coincidence' the Tiananmen Square massacJe lr"'l swecl) rr' place on the same day as Solidarity's historic electior-r strrrtr' Polancl-1.,,'t e 4, t'989. They were, in a way, two very different
shock 'r' " in tl're shock doctrine. Both countries had needed to exploit China' ul" " push through a free-market transformation' hl fear to
I

its wLcnching cl'range in a country that, under Communism, for all the ny abuses and hardships, had no open loblessness' Even when

rrromy began growing again' high unemployment ren-rained rnic. According to the world Bank's most recent figures, Poland an unemployment rate of 20 percent-the highest in the E'uror

;rercent

Union. For those under twenty-four, the situation is far worse: 40 t of young workers were Llnenployed in 2006, twice tl're EU . Most clran'ratic are the number of people in poverty: in l9B9' of Poland's population was living below the poverty line; in

212

THE SHOCK DOCTRINE

SLAN/MING THE DOOR ON

HISTORY

213

2003, 59 percent of Poles had fallen below the line.58 Shock tl,,
f

which eroded ob protection and rnade daily life far rnore exl)(.. ,r was not the route to Poland's becoming one of Europe's "nor,,,,! countries (with their strong labor laws and generous social bcrr, l,t
,

'

,1,

, rrrore than 6,000 sr-rch protests.('1 Faced with this pressure from r-nore anbitiotts nr', the government was forced to slow down its that saw almost 7'500 year slizrrtion plans. By the end of 1993 Lrs -62 percent of Poland's total industry was still pr-rblic'"2 'l,lrc fact that Polish workers n'ranagecl to stop the wholesale privaof their country means that as pair-rfr-rl as the reforms were'
r0rr

-a

but to the same gaping disparities that have accompanied the co r . revolution everywl'rere it has triumphed, from Chile to China.
r

The fact that it was Solidarity, the party built by Polancl's

1,1,,,
,

collar workers, that oversaw the creation of this permanent undt r, I represer-rted a bitter betrayal, one that bred a deep cynicism an(l ,r , ,, , in the country that has never fLrlly lifted. Solidarity's leaders oftcrr 1,1 ,.

r,ould have been far worse. The wave of strikes unquestionably lr.ndrecls of thousands of iobs tl'rat wo.ld otl-rerwise have bee' il these supposedly inefficient firms had been allowed to close or

down the party's socialist roots, with Walesa now claiming thal :r, | ,, back as l9B0 he knew they would "have to build capitalism." 1..,,,,'l Modzelewski, a Soliclarity militant and intellectual who Spenl t r1,l,r and a half years in Commr-rnist iails, retorts angrily, "I wouldn't 1r,,,, spent a week nor a month, let alone eigl-rt and a half years in jrril 1,,,
capitalisrn!"5e

growing Tadeusz rrrrinent Polish economist and former Solidarity rnember firn-rs as ineflik, tl-rat those who were ready to write off the state rt and archaic were "obviously wrong'" way to exllt'sides going on strike, Polish workers found another
prrr

economy rurlically downsized and sold off. Interestirlgly, Polar"rd's according to the quickly in this same period, proving,

:,

llts

For the first year ar-rd a half of Solidarity rule, workers bclr, r,,l their heroes when they were assured that tl-re pain was tenporrrrl necessary stop on the way to bringing Poland into modern F,rr,,,;,,
Even in the face of soaring unemployment, they staged only ar srrrrt tering of strikes and waited patiently for the therapeutic part of tl,, sl'rock tl'rerapy to take effect. When the promisecl recovery dichr't ,,'
rive, at least not in the form of iobs, Solidarity's members were sir
rr1,1,

tl're their anser with their onetime allies in Soliclarity: they used at the nocracy ttrey had fought for to punish the party decisively 'fl-re most ls, incluclir-rg their once-beloved leader Lech walesa. nrlrtic trolrncing came on September 19,1997, when a coalition (rebranded leit parties, incluclir-rg the former ruling Con'rmunists .rrrocratic Left Alliance), won 66 percent of the seats in parliament. hacl, by this tine, splintered into warring factions' The 'l-., ^--, party led the r.rinre - new -^*!., l^.1 by l\lI.-^."ianli Mazowiecki, tl.o prine irr the parliament, and a shock rister, won iust 10.6 percent-a resounding reiection of
'rirPy.

tlarity c ttnion faction won less thar-r

! percent, losing official

party sta-

confused: How cor-rld their own movement have delivered a starrrl.,,,l of living worse than that under Communism? "lSolidarityl defer,,l,
me

in l9B0 when I set up a union committee," one forty-one-ye:rr ,,1,1 construction worker said. "But when I went to them for help tl,, tin-re, they told rne that I l-rave to suffer for the sake of refbrm."60 About eighteen months into Poland's period of "extraorclirrrrl
politics," Solidarity's base had had enor-rgh and demanded an errrl I,, the experiment. Tl-re extreme dissatisfaction was reflected in a m:u l, ,l increase in the number of strikes: in 1990, when workers were still r1, ing Solidarity a free pass, there were only 250 strikes; by I99Z tlr,,,

Yct somehow,

of countries strr-rgIwith how to reform their economies, the inconvenieut detailslost' strikes, the electior-r clefeats, tl're policy reversals-would be radical freelcad, Poland woulcl be l-reld up as a n-rodel, proof that

in the years to corne,

as dozens

makeovers can take place dernocratically and peaceftrlly'

l,ike so many stories about cor:ntries ir-r transition, this or"re was democracv rstlv a rnyth. But it was better than the tnrth: irr Poiand,

21.4

THE SHOCK DOCTRINF

was Llsecl as

weapon against "free markets" o' the streets and lrl ll" t.,1" uolls. Meanwliile in china, where the drive for free-wheeling k r" " talisrtt rolled over democracy in Tianatlnen Square' shock ancl unleashed or-re of the most lucrative atld sustained invcstor boottt" "
er

CHAP'fER

TO

modern l-ristory. Another nriraclc born of

rr

lllassacre'

DE M OC

RACY BORN IN CHAINS

i,OUTH AFRICA'S CONSTRICTED FREEDOM

Reconcitiation means that those who have been on the underside of history must see that there is a qualitative difference between repression and freedom' And for them'
freedom transtates into having a suppty of ctean water, having etectricity on tap; being abte to tive in a decent home and
have a good job; to be abte to send your chitdren to schoot point of and to have accessibte heatth care. I mean, what's the peohaving made this transition if the quatity of tife of these pte is not enhanced and improved? lf not, the vote is usetess'

-Archbishop

Desmond Tutu, chair of South Af rica's Truth and

1

Reconcil.iation Commission' 200

'

Before transferring power, the Nationatist Party wants to emascutate it. lt is trying to negotiate a kind of swap where it
wil,t give up the right to run the country its way in exchange for the right to stop btacks f rom running it their own way' -Al.Lister
Sparks, South
Af

rican journalist2

27A

THE SHOCK DOCTRINE at least, was the message being peddled by the lawyers,

That,

ec""
CHAPTER
T1

"harr.'r omists and social workers who made up the rapidly expanding tion" industry-the teams of experts who hop from war-torn coltttlrt

to crisis-racked city, regaling overwhelmed new politicians with llr, Iatest best practice from Buenos Aires, the most inspiring succ( story from Warsaw, the most fearsome roar from the Asian Tigt ,,Transitionologists" (as the NYU political scientist Stephen colr, " has called them) have a built-in advantage over the politicians tlr, r advise: they are a hypermobile class, while the leaders of liberati,'r' movenents are inherently inward-looking.53 By their very natttr''
' r

OUNG DEMOCRACY
USSIA CHOOSES "TH E INOCHET OPTION''
Pieces of a tiving city cannot be auctioned off without taking

ONFIRE OF A

people spearheading intense national transformations are narrou lr l" focused on their own narratives and power struggles, often unablc'
pay close attention to the world beyond their borders. That's unfor.lrr

nate, because

if the ANC leadership had been able to cut throrr;il'

into consideration that there are indigenous traditions, even

the transitionology spin and find out for itself what was really goirrrl on in Moscow; warsaw, Buenos Aires and Seoul, it would have sectr 'r
very different picture.

if they seem odd to foreigners. . . . But these are our traditions and our city. For a long time we tived under the dictatorship of the Communists, but now we have found out that tife under the dictatorship of business people is no better. They couldn't care less about what country they are in.

-Grigory Gorin, Russian writer,

Spread the

1993r

truth-the laws of economics are like the laws of

Bank,

engineering. One set of laws works everywhere.

World -Lawrence Summers, chief economist of the

19912

Soviet president Mikhail Gorbacl'rev flew to London to attend first G7 Summit in fuly 1991, he had every reason to expect a

welcone. For the previous three years, he had seemed not so h to stride across the international stage as to float, charming the ia, signing disarmament treaties and picking up peace prizes, in's

uding the Nobel

in

1990.

'$
fi

216

THE SHOCK DOCTRINE

BONFIRE OF A YOUNG DEN/OCRACY 277

i t

He had even lranaged to clo the previor-rsly unthinkable: uir, ,''' -fhe Russian leader so thoroughly chirllt r,1 "r the American public. Evil Ernpire caricatures that the U.S. press had taken to calliru' 1,," by a cucldly nickname, "CoLby," and in 1987,'fitne magatzirrt l,,,'l the risky decisior-r of making the Soviet president tl-reir N4arr t,l tl,' Year. The editors explained that unlike his predecessors ("gitr;',,' l'
'

lrirn fall. "'l'heir suggestions as to the ten'rpo and methods of traniorr were astonishing," Gorbachev wrote of the event.6

fur hats"), Gorbachev was Russia's own Ronald Reagan - "a 1., , ',' lin version of the Great Communicator." The Nobel Prize coltrrrrll,
ir-r

'

declared that thanks to his work, "lt brating the end o{the Cold Wtr."'

is our hope that we are

ltol\ i , l,
,

tlislr prin're n'rinister ]ohn Major, U.S. president George H. W r, Canadian prime n-rinister Brian Mulroney and ]apanese prime ristcr Toshiki Kaifu was that the Soviet Union had to follow rrcl's lead on an even faster timetable. After the meeting, Gorlrcrv got the same marching orders from the IMF, the World Bank
rrl cvery other rnajor

l'oland had just completed its first round of shock therapy under IMF's and feffrey Sachs's tutelage, and the consensus among

lending institution. Later that year, when Rus-

gl,t'",, (openness) and perestroiftc (restructuring), Gorbachev had lctl tl"

By the beginning of the r-rineties, with his twin policies of

rtsked for debt forgiveness to weather a catastrophic economic cri-

Soviet Union through a remarkable process of democratizatiorr ll,' press had been freed, Rr-rssia's parliar-trent, local ccluncils, presr,l,
,

llre stern answer was that the debts had to be honored.T Since the rc when Sachs had marshaled aid and debt relief for Poland, the

and vice president had been elected, and the constittttior-ral cotttl rr independent. As for the econorny, Gorbachev was moving tolvrtr,l

itical mood had chaneed-it was meaner What happened next-the dissolution of the Soviet Union, Gor'lrcv's eclipse by Yeltsin, and the tumultuous course of economic well-documented chapter of contempolristory. It is, however, a story too often told in the bland language "rcform," a narrative so generic that it has hidden one of the greatrck therapy
a

.t

mixture of a free market and a strong safety net, with key indttslr', under public control-a process he prcdicted wouicl take tett 1,, I'l teen years to be completed. His er-rd goal was to build social clcr',,,, racy on the Scandinaviarn model, "a socialist beacon ftrr 'rll
mankind."a

in Russia-is

c'rimes committed against a democracy in modern history. Russia,

At first it seemed that the West also r,var-rted Gorbachev to looser-ring r-rp the Soviet economy ancl transfortning it into sorr,, thing close to Sweden's. The Nobel Comrnittee explicitly descril,, 'l the prize as a way of offering support to the transition-"a hel1,"',
sttc't , , ,l

in

hand in an hour of need."

on a visit to Pragtte, Corbachev rrr,,,l, it clear that he couldn't clo it all alone' "Like mountain climbers ,','
Ar-rcl

orle rope, the worlcl's uartions can eitl'rer climb together to the stulrrrrtl or fall togetl'rer into the abyss," he said.5
So what happened at the G7 meeting in l99l was totally trrr,' pected. The nearly unanimous message tl-rat Gorbachev reccir,,l from l-ris fellorv heads of state was that, if he did not en'rbrace railir.rl economic shock therapy immediately, they would sever the rope rrr',1

China, was forced to choose between a Chicago School ecorrric program and an authentic democratic revolution. Faced with l choice, China's leaders had attacked their own people in order to t democracy from disturbing their free-market plans. Russia different: the democratic revolution was already well under -in order to push through a Chicago School economic prorn, that peace{ul and hopeful process that Gorbachev began had be violently interrupted, then radically reversed ()orbacl'rev knew that the only way to impose the kind of shock rapy being advocated by the G7 and the IMF was with force-as nrany in tl-re West pushing for these policies. The Economist maga"strong, in an influential I990 piece, urged Gorbachev to adopt n rule . . . to 'srnash the resistance that has blocked serious

278

THE SNOCK DOCIRINE

BONFIR[. OF A YOUNG DEN/OCRACY 279

econotnic reforrn."E Only trvo wecks after the Nobel

Comntillt,

I'

Ir1r,,

ol

l-ris

most controversial nreastlres w:rs an aggressive anti-vodka-

declared an encl to the Cold War,The h'cctnomist was utgirrl', t "'' bacl'rev to model irin'rself after one of the Cold War's most 111v11v1 1, ',,
killeLs. Ur-rder the i-reading

drrrrl.irrg campaign), Yeltsin ll'as

a notorious glutton ancl a

hear'y

"Mikhail Sergeevich Pinochet?" tlr' '"r

cle conciuded that even though following its advice could car-rs,' 1"' sible bloodlettir-rg. . . it migl'rt, iust miglrt, be the Soviet l-Jniott:' l"' for what could be called tl-re Pinochet approacir to liberal ecoil()rrrr,
The Washington Post was rvilling to go further. In Argust 1991 , t | " per ran a cotnmentary under tl-re headline "Pinochet's Chile:r l"
I

i $,t,',rrccl political
.{ t

drrrrl,cr. Prior to thc cottp, I'nany Russi:rns harbored reservations glr,ql Ycltsin, but l-re haci heiped save democracy frorr-r a Commrinist glrrlr. and that lnacle hin-r, at least for the tin're being, a peoplc's hero. \i'ltrin inrmediately parlayed his triumpl'rar-rt showclown into inpo\\'er. As long as the Sovict Union remained intact, always l'ravc less contr-ol than (]orbachsl', but in Decen-rber four uronths aftcr the aborted coup, Yeltsin pulled off a politi-

i fi,. u,,,,rld
'
,

lr)(l Gnl

l,

rnatic Model

for Soviet Econorny." The article supported tfie iclt rr ,,1

coup for getting rid of tl-re slow-going Gorbachev, but the irrrll'"' ' Michael Schrage, worried tl-rat tl're Soviet presiclent's opironetrls 1"'
neither thc s;rvr'y r-ror the support to seize the Pinocl'ret option." ll" shoulcl model thelnsclves, Sc|rage wrote, after "a despot lvh' r' 'll
knew how to rltn a coup: retired Chilean general Augusto Pinoc
'$

rrrasterstroke. He forrned an alliance witl-r two other Sovict reprrlrlics, a rnove that l-rad the cffect of abruptly clissolving the Soviet llrriorr, thereby forcing clorbachev's resignation.'I'he abolition of the trrvict Union, "the only cottntry rnost Russians had cver known," lvas

l"

Gorbacl-rev soon for,rnd hirnself facing an adversary who lvas tr r' " t|an willirrg to play the role of a Rr-rssian Pinoclret. Boris Y'11,,,,
'

though l'rolding the post of Russiarr presider-rt, hacl a r-Ducl'r lo$,cr 1," file tl-ran Gorbachev, wl'ro headecl all the Soviet Union.'['l-rat $:r' t, change drarnatically on Ar-rgust 19, 1991, oue month after th' t

I l,,xverful shock to the Russian psyche-and as the polrtical scicntist tr Col-ren put it, it rvas the first of "three tr:nunatic shocks" tlrat $ !tt,.|,lre wouid endttre over thc next three years.12 fi Rrrrrir,rs { ;,.Ffr.y' Sachs was ilr the room at the Krcmli[r on thc day Yeltsin anItt,,',,'.e,1 that the Soviet t]nion was no more. Sachs recalled the l; ltrrrrrruv\r
ing, "'Gcntlemen, I iust want to annouuce that ii tl,,' Snui.t Union l-ras encled. . . .' And I saicl, 'Gec, you know, this is , trlrr.c in a ccnturl-. This is the rnost incredible tl-ring you can irragine; i,lhrs is a true liberation; Iet's help these peoplc."'ll Yeltsin had irrvited { lipr.lrs to corne to Russia to sc1'e 1s ar1 aclviser, and Sachs was lnore
&

j
!

R,,rrirn president

say

A group from the Conrmunist old gtrard clrove tatlks rrl' t' the wl'rite House, as tl're Russian parliament builcling is callecl. hr rr l",l to halt the democratization process, thev threatened to attacl' tl'' country's first elected parliamerlt. Amid a crowd of Russians tltl' mined to defer-rd their r-rew dcmocracy, Yeltsir-r stood on otle ol ll" tanks ar-rd denounced the aggression as "a cyrlical, right-wing corrl) rl tempt."l0 '['he tar"rks retreated, and Yeltsin emergecl as a cotlralg( (rrl deferrder of den-rocracy. One demonstrator wlro stood in the str,,
Surnn-rit.
'
t

tlrirrr gan're:

"lf Rrland

can do it, so can Rttssitt," he declarcd.l+

l.re wantcd tl-re

kind of goldplrlcd fur-rd-raising that Sachs had pulled off for Poland. "The only

lirt Yeltsin didn't lust r,vant advice,

|to1lc," Yeltsir-r saicl, "rvas tl-re pron'rises

of the Group of Sevcll quickly to

grirnt us large stints of financial aid."l5 Sachs told Ycltsin hc was cor-rfi-

that day described it as "the first tin-re I felt that I cotrld really affect situation in mV country. Our souls soared. It wirs such a fssli111,,,l
tl,,

rrrrily.

Wt [elt irrvintible."]I

rvilling to go witl'r thc "big bang" appro:rch to cstablishing a capitalist cconoilry, he could raisc sometl-ring in tl'rc gn,l of $15 billion.tr'T'he.v would neecl to be ambitiotrs, and they
dcrrt that

if Nfoscow

rvas

And so clid Yeltsin. As a leader, he liacl always beetr a kind of ;rn Gorbacl'rer,. Wl'rere Clorbachcv had projected proprietv aud sobr.i, t,

would need to move fast. What Ycltsin clid not know was that Sachs's
hrck was about to run out.

280

THE SHOCK DOCIRINE

BONF]RE OF A YOUNG DEMOCRACY 281

in common u'illr tl,' corrupt approach that had sparked the Tiananmen Square prolt '1 ",
Russia's conversion to capitalism had much

China two years earlier. Moscow's mayor, Gavriil Popov, has clrrrr',' 'l that there were really only two options for how to break rr1, tl,' centrally controlled economy: "Property can be divided slrlorrl i!
members of society, or the best pieces can be given to the leaclcr,'

lirrrveying the group that had suddenly ascended to power in '<rw, the Russian newspaPer Nezavisimaya Cazeta observed the Irt.r astonishing development that "for the first time Russia will get its government a teant of liberals who consider themselves followol' I,'riedrich von Hayek and the 'Cl'ricago school' of r,"

Milton Fried-

In a word, there's the democratic approach, and there's the llrtrtt,,,

klatura, apparatchik approach."lT Yeltsin took the latter approrr, l, and he was in a hurry. In late 1991, he went to the parliamerrl r','l
I

made an unorthodox proposal: if they gave him one year of sp, , r ,l powers, under which he could issue laws by decree rather thatr l,r rr,, them to parliament for a vote, he would solve the economic crisis ,rr,,l give them back a thriving, healthy system. What Yeltsin was rtslrlp' for was the kind of executive power enioyed by dictators, not clt rrr,' crats, but the parliament was still grateful to the president for his r,,1,

'lheir policies were "quite clear-'strict finar-rcial stabilization' rrcling to 'shock therapy' recipes." At the sarne time as Yeltsin : these appointrnents, the newspaper noted, he had also put the rrious strongman Yury Skokov "in charge of the defense and reive departments: the Army, the Ministry of Internal Affairs and State Security Comn'rittee." The decisions were clearly con:cl: "Probablv the 'strong' Skokov can 'ensure' strict stabilization

it in the econlxrlitics while the 'strong' economists guarantee ," The article ended with a prediction: "It will come as no surif they attempt to construct something like a homegrown
rchet system,

during the attempted coup, and the country was desperate for frrr, ';' aid. The answer was yes: Yeltsin could have one year of absolrrl'
power to remake Russia's economy.

in which the role of the

'Cl-ricago boys'

will

be

I by Gaidar's team."le

He immediately assembled a team of economists, many of wlt,,',, in the final years of Communism, had formed a kind of free-nrrrrl, book club, reading the basic texts of the Chicago School thirrl', and discussing how the theories could be applied in Russia. Tht,rrll, they had never studied in the U.S., they were such devoted f:rtts,,l Milton Friedman that the Russian press took to calling Yells"' team "the Chicago Boys," a knock-off of the original title, and fi tl ' , ,' in the context of Russia's thriving black market economy. hr ll' West tl-rey were dubbed "the young refornters." The group's figr'', head was Yegor Gaidar, whom Yeltsin named as oue of his lrr deputy prime ministers. Pyotr Aven, a Yeltsin minister in 199I 't who was part of this inner circle, said of his former clique, "'I'lr, rr identification of themselves with God, which flowed naturally fit,r their belief in their all-round superiority, was, unfortunately, typir ,,
t
r

'lb provide ideological and technical backup for Yeltsin's Chicago ys, the U.S. government funded its own transition experts whose rs ranged from writing privatizatior-r decrees, to launching a New stock excl-range, to designing a Russian mutttal fr:nd mar, lrr the fall of 1992, USND awarded a $2.1 million contract to the rd Institute for International Development, which sent teams of ng lawyers and economists to shadow the Gaidar team. In May
5,

Harvard named Sachs director of the Harvard Institute for Interir-t

ional Development, wl-rich neant that he played two roles

lssia's reforrn period: he began as a freelance adviser to Yeltsin, thell

on to oversecing Harvard's large Russia outpost, funded by the

,S.

government.

of our reformers."ls

Once again a group of self-described revolutionaries huddled in t to write a radical economic program' As Dimitry Vasiliev, one the key reformers, recalled, "At the start, we didn't have a single ployee, not even a secretary. We didn't have any equipment, not

282

THE SHOCK DOCTR NE

t

BONFIRE OF A YOUNG DEN/OCRACY 283

even a lax rrracltiilc. And irr thosc conditions, in iusl a rrlortlll rrrr'l half, we had to writc a comprehensive privatization progran-r, wc' lr r' to rvrite twenty norrnative laws. . . . It was a really romantic periotl On October 28, 199 I, Yeltsin annoLrnced tl-re lifting of price t ""

pnlcnt-were opposed to lifting price controls, he explained, but

i

"ttr could see that tl're people, then and now, were concentrating on llrl yiclds of their private [garden] plots and in general on their indirrrlrr;rl econotnic circtttltstanccs."z'

predictirrg that "the liberalrzatiorr of prices will Put erenllrr" ( in its rigl,rt place."2l The "reformers" waited only one week after ,,,r bachev resigned to launcl'r their econornic shock therapy Prograrrl
trt-rls.

oseph Stiglitz, who at tl-re time was ser-,ring as cl'rief economist at flir World Bank, summ arized the mentality that guided the shock
f

tlrcr:rpists.

His nietapl-rors should by now be farniliar: "Only

the seconcl of tl-re three trar-unatic sl'rocks. The shock therapy Progr 'rr also inch-rded free-tracle policies and the first phase of the rapid l',,

privatization of the country's approxirnately 225,000 state-o$rr,,I

compauies.zz "Tl-re country was taken by surprise by the 'Chicago School' 1lr" grarl,r,,'or-re of Yeltsir-r's original economic advisers recalled.2r'll'.,t surprise was cleliberate, part of Gaidar's strategy of unleasl-rilrg cl-r:r ilr',' so sudde[r11,and quickly that resistance would be iilrpossible.'llr,

blrlzkrieg approach during the 'window of opportunity' pLovidcd by llrt"lbg of transition' would get the changcs made before the popul:r- lirrrr had a chance to organize to protect its previous vested inter-

problem his team was up against was the rrsual one: the thre:rl ,,1 clemocr acy obstnrcting their plans. Russians dicl not want their et ,,r' orny organizecl by a Communist central committee, but rnost still 1,, Iieved firrnly

In otl'rer words, the sl'rock doctrine. Sliglitz called Russia's reforlners "market Bolsheviks" for therr ftrrrrlness for cataclysnic revolution.2T Flowever, where the original liolsheviks ftrlly intefrded to build their cer-rtrally planr-red state in the nrlrcs of thc old, thc market Bolsheviks bclieved in a kind of magic: if tlrr, optimal conclitions for profit rnakilrg were created, the country n'orrld rebr-rild itself, no planning required. (lt w:rs a faith that would
erls."26 rr'f

llrerge, a decade later, in Iraq.)

in wealth redistribution and in an activist role

l,'r

government. Like the Polisl-r supporters of Solidarity, 67 percerrl ,,1 Rtrssians told pollsters in 1992 they believed workers' cooperatir, were the most equitable way to privatize the assets of the Cornmurr, state, ancl 79 percent saicl they consiclered mair-rtaifring full empl,,r
Yeltsin's team had subrnitted their plans to democratic debate, rallr, than launching a stealth attack on an alreacly deeply disoriented pr rl lic, the Chicago School revoltrtion would r-rot I'rave stood a chancc

Ycltsin made wild promises that "for approximately six montl'rs' llrirrgs will be worse," but then the recovery would begin, and soor-t errorrgh Russia woulcl be an econornic titarl, onc of tl-re top fotrr
er,orromies in the world.28 This logic of so-called creativc destrtrction

'tent

to be a core fu.ction of governme't.z+ That meant thirl

rl
,

in scarcc creation and spiraling destruction. After only onc yt,rtr, shock therapy had taken a devastating toll: millions of rniddlerl;rss Russians had lost their life savings when ntoney lost its value'
n,srrlted

'

Vlaclirnir Mau, ar-r adviser to Boris Yeltsi[r in this period, explaitr,,l favorablc co'rditio. for reform" is a "weary public, , . that "the 'rost r, har-rstecl by tl-re previous political struggle. . . . Tl'rat is why the govcr rnent r.vas confident, on the eve of price liberalization, that a draslr, social clasfi was impossible, that tfie gover'ment would not be ovt tl-rrowr-r by a popular rel'olt." The vast majority of ftLl55i2n5-i0
r

abrupt cuts to subsidies meant millions of workers had not beer-r prritl in months.29'I'he average Russian consumed 40 percent less in l()()2 than in 1991, and a third of the popr,rlation fell below thc
Crr<l

I |rg, fro-

povcrty line.30 The rniddle class was forced to scll personal belongcard tables on the streets-desperate acts that the Chicago !it'lrool economists praised as "entrepreneuriarl," proof that a capital-

inl renaissance was indeed rtnder way, one family tccond-hand bhzer at a tirnc.rl

heirloon

arrd

281

THE SHOCK DOCTRINE

rrr rr

BONFIRE OF A YOUNG DEN/OCRACY 285

As in Poland, Russians did, eventually, regain their bearingS

| |"

risscd as "communist hardliners" trying

rlnrs.33

to roll back democratic

gan to demand an end to the sadistic economic adventure ("t),, ,," " experiments" was a popular piece of graffiti in Moscow at thc' lrr"'

r
'

They suffered, according to the New York Times Moscow chief, from "a Soviet mentality-suspicior-rs of reform,

Under pressLlre from voters, the country's elected parliamclrl ll'' power-decidetl rl " time to rein in the president and his ersatz Chicago Boys' In l), " " ber 1992, they voted to unseat Yegor Gaidar, and three months l.rl' ' in March l993, the parliamentarians voted to repeal the specirrl 1" '" ers they had given to Yeltsin to impose his economic laws by clt', ,' ' The grace period had expired, and the results were abysn-ral: lr"'" now on, laws had to go through parliament, a standard measrrrr rir any liberal democracy ar-rd following the procedures set out irr lirr
same body that had supported Yeltsit-t's rise to
'

rnrnt of democracy, disdainful of intellectuals or 'detnocrats'"'34

Irr fact, these were the same politicians' for all their flaws (and 1,041 deputies there were plenty), who had stood with Yeltsin (lorbachev against the coup by the hardliners in 1991, who had to dissolve the Soviet Union and who had, until recently, their support behind Yeltsin. YeIThe Washington Posf opted c:lrst Russia's parliamentarians as "antigovernment"-as if they r interlopers and not themselves part of the government'') lrr the spring o{ 1993, the collision drew closer when parliament

sia's constittttion.

The deputies were acting within their rights, but Yeltsirr

lr.r'l

grown accustomed to his ar.rgmented powers and had come to of himself less as a presider-rt and more as a monarch (he had takcrr l"
llrrrrl

calling himself Boris I). He retaliated agair-rst the parliarrrt nt "mutiny" by going on television and cleclaring a state of emergt'rl I which conveniently restored his imperial Powers' T'hree days lrrl' ' Russia's independent Constitutional Court (the creation of lvlrr, I'
was one of Gorbachev's tt'tost significant den'rocratic breakthrorrtil,
'

bill that did not follow IMF demands for ict austerity. Yeltsifr responded by trying to eliminate the parliart. He hastily threw together a referendum' supPorted in Olllian fashion by the press, which asked voters if they agreed to ve parliament and hold snap elections. Not enough voters rcd out to give Yeltsin the mandate he needed. He still claimed
Irrrght forward a budget

rv, however, maintaining that the exercise proved the country behind him, because he had slipped in an entirely non-binding ion about wl'rether voters supported his reforms. A slim rraiority
yes.l6

ruled 9-3 thatYeltsin's power grab violated, on eight different cottrrl' the constitution he had sworn to uphold. I-lntil this point, it had still been possible to present "ecolr"t"" reform" and democratic reform as part of the same proiect in Rtts',.'
But once Yeltsin declared a state of emergency, the two proiects "r r r' on a collision course, with Yeltsin and his shock tl'rerapists in clirt,
t

opposition to ihe elected parliament and the constitution' Nevertheless, the West threw its weight behind Yeltsin, who u'," still cast in the role of a progressive "genuinely committed to freeck,r,,
and democracy, genuinely committed to reform," in the words of tlr, ', U.S. president Bill Clinton.s2 The majority of the Western press aL," sided with Yeltsin against the entire parliament, whose members u't'"

lu Russia, the referendun was widely seen as a propaganda exer:, and a failed one at that. The reality was that Yeltsin and Washwere still str-rck with a parliament that had the constitutional to do what it was doing: slowing down the shock therapy transnation. An intense pressure campaign began. Lawrence Sum)rs, then U.S. Treasury undersecretary' warned that "the
lmentum for Russian reform rnust be reinvigorated and ir-rtensified ensure sustained multilateral support."iT The IMF got the mestge, and an unnamed official leaked to the press that a promised

1.5 billion loan was being rescinded because the IMF was rhappy with Russia's backtracking on reforms."38 Pyotr Aven, the

256

THE SHOCK DOCTRINE

BONF RE OF A YOUNG DE[/OCRACY 287

former Yeltsin mir-rister, said, "The maniacal obsession of tlrt l\lt with budgetary anci monetary policy, and its absolutely sttpt rlr,,,l and formal attitude to everything else. .. played not a small r,l, ,,'
wl'rat happened."le

purnishment h$rrr l'oland that voters had rainecl down their decisivc tfierapy. t'r Solidarity, the party tl'rat had betrayed the'-r with sl-rock Allcr they witnessed Solidarity get pounded at the polls, it was obwere far ritlils to Yeltsin and his western adviscrs that early elections l-rung in the balance: hrrge oil frrrr risky. L,r Russia, too much wealth
Fehls, about 30 percent

What happened
dent tl'rat he hacl

was that the day after the

IMF leak, Yeltsin, r ,,',t'

support, took his first irreversible slt l' t,' ward what was now being openly referred to as the "Pinochet opl r,r, he issued decree 1400, announcing that the cor-rstitution was ;r1,, 'i
tl-re West's

ofthe world's natural gas rescrves, 20 percent tl-re state media apttf rls rrickel, not to mention weapons factories and the Co'r'runist Party fiad co'trolled the vast popftHl;tl.s with wliicfi
ll;tlion. Yeltsin abandoned r-regotiations and rnoved into war Posture' of the army on his llrrvirrg just doubled military salaries, he had nrost Interior lltlc, and he "snrroundecl the parlia[rent wit]-r thotrsar-rds of and refusecl to let Minrstry troops, barbecl wire and water cannons Post'at Vice President lf fyorre pass," accorclir-rg to The Washington tl'ris point armeci Rrrlskoi, Yeltsin's main rival ir-r parliament, had by
ttrgccl his sttpporters

ished and parliament clissolved. Two days later, a special 5s*i1111 ,,1 parlian-rent voled 6j6-Z to impeach Yeltsin for this olrtrageou\ ,,

(the equivalent of the tl.S. presider-rt ur-rilaterally dissolving ( 1,,,, gress). Vice President Aleksandr Rutskoi announced that Russirr lr.r,l already "paid a dear price for tl-re political adventurism" of Yt'lt,',,
and the reformers.4o Some kind of armed conflict between Yeltsin and the parliarrr,.t

was now inevitable. Despite the fact that Russia's Constituliorr.rl Court once again rr-rled Yeltsin's behavior unconstitutional, Clirrl,,,' continuecl to back him, and Congress voted to give Yeltsin $2.5 bill', ,', in aid. En'rbolder-red, Yeltsin sent in troops to surround the parliar r r, ',t and got the city to cut offpower, heat and pl-rone lines to the Wlnt, House parliament building. Boris Kagarlitsky, director of the Inslilrt' of Cllobalization Studies in Moscow, told n-re that supporters of l{rr , ian clemocracy "were comir-rg in by the thousands trying to break ll,, blockade. There were two weeks of peaceftrl demonstrations (()rl fronting the troops ancl police forces, wl-rich led to partial unbloclinl of the parliament building, with people able to bring food and rvrrl, inside. Peaceful resistance was growirrg rnore popular artd grtitrr"
.

ir-rto his camp. He his gtrards ar-rd welcomecl proto-fascist nationalists

to "not give a moment of Peace" to Yeltsin's "rlictatorship."a2 Kagarlitsky, who participated in the protests on October 3' dtrrl wrote a book about the episode, told me that "marchecl to the ostankino t,rowcls of supporters of the parliament 'l'V center to clemand that r-rews be announced. Son-re people in the rlrwd were anled, but n'rost were not. There werc children iil tl're About elrwd. It was met by Yeltsin's troops and machine-gunned'" hundrecl clemonstrators, and oue tncmber of the n'rilitary, were 'rrc cotrrllrillcd. Yeltsin's next move was to dissolve all city and regional destroycd cils in the country' Russia's yol-lng democracy was being
picce by piece.

broacler support every day."

With each side becoming more entrenched, the only comprorrri:,, would have been for both sirl, to agree to early elections, putting everybody's fob up for public ', view. Many were urging this or-rtcome, but just as Yeltsin was weigl, ing I'ris options, anci reportedly leaning toward elections, news carr(
tl-rat coulcl have resolved the standoff

'l'here is no doubt that some parliamentarians shorved antipathy but as even the ftrr a peaccful settlernent by egging on the ctowds, the parliafr)Irner U.S. State Department official t,eslie Gelb wrote, It was rrrcnt was "not donrinated by a bunch of right-wing crazies."43 l-ris defiance of the l,cltsin's illegal <lissolution of parliament and
t,r)rrntry's I,righest court that precipitated the crisis

moves that were

288

THE SHOCK DOCTRINE

BONFIRT OF A YOUNG DEMOCRACY

285

bourtrl to be rrrct lly desperate Ineasures in a corrrtry that lr;r,l l,,rt desire to give up the clemocracy it had just won.* A clear signal from Wasl'rir-rgton or the EU could havc 1,,,,,

tlrllusrrnd, tl'rc most vio]cncc Moscow ltad seen since I917.+5 Peter

gr.,hlrrway and Dn-ritri Glinski, who rvrote the definitive accortut of Market Bolshevism lf r,, 'r't'ltsir-r years (TheTragedy of Russia's Refonns:
tt1tnttst Democrac:y),

Yeltsin to engage in serious negotiations with the parliamenlrrrr.r,' but he received only encouragement. Finally, on the monrirr, ,r October 4,1997, Yeltsin fulfilled his long-prescribed destiny arr,l | came Russia's very owr-r Pinochet, ur-rleashing a series of violent c'r, ,,t
,

liilrr

ill

point out that "cluring tl're n-ropping-tlP operaand arouncl the \Vl'rite I{ouse, 1,700 persons had been ar-

with unmistakable echoes of the coup in Chile exactly twentv r earlier. In what was the thircl traumatic shock inflicted by Yeltsir' , "
r

weapons seized' Sonle of the arrcsted wcre interned in after tl're a rgr,rts staclitrn, rec'lli1g the procedurcs uscd by Pinochet I'l/3 coup in chile."a6 Many were taker"r to police stations, whcre
ir.rlcrl, and llrt,v were scverely beaten. Kagarlitsky recalls that rvhile he was being rlrrrt,k on the head, an officer shouted, "You wanted democtacy, yott rrrrs of bitches? We'lI sl-row yort democracy!"+7 lirt Russia wetsn't a repeat of Chilc-it was

ll

the Russian people, he ordered a reluctant army to storm the Rr r,, ,, ,,'

White House, setting it on fire and leaving cl'rarred the very btril,l,,, l-re had built I'ris reputation defer-rding just two years earlier. Cor ),,,,, nism rnay have collapsed withor-rt the firing of a single shol. l,r,r Chicago-style capitalism, it tunred out, required a great deal of 1i,,', fire to defend itself: Yeltsin called in five thousand soldiers, cloze rr', , tar-rks and armorecl personnel carriers, l-relicopters and elite slr,,, troops arn-red with auton-ratic machine gr-rns-all to defend llus'', new capitalist economy from the grave threat of democracy. This is lrow'lhe Boston Clobe reported on Yeltsin's parliamerrl,r' siege: "For l0 I'rours yesterclay, about 30 Russian army tanks anrl .,, mored personnel carriers encircled the parliarnent buildir-rg in ckrrr " town Moscow, known as the Wl-rite House, and pelted it urtl, explosive rouncis, while infar-rtry troops sprayed machine-gun fir-c'. \t 4: l5 p.n-r., about 300 guards, congressional deputies and staff work, marched single-file out of the building with their l-rands up."aa By the encl of the day, the all-otrt r-nilitary assault had taken tl,, lives of approxin'rately five hundrecl people and woundecl alnrosl .,
,

Chile itl rcvcrsc orclcr: l,rrrochet staged a coup, clissolvecl the institutions of democracy ancl llrt,lr imposed shock ther:rpy; Yeltsin imposecl shock tlierapy ir-r a

,1

r[,rrr'crac,v, then coulcl defer-rd it only by dissolying dctnocracV a1d stagiilg ir coup. Botl-r scenarios earued enthusiastic suPPort fron'r the west.

Receives wiclesprcad Backing for Assault," read a Lrcad"Victor)' Seen for rrrc in Tl'te Washington Post the day after thc coup. "Russia Escapes a Retum to l)t,rrrocracy." 'I'he Boston G/obe werlt rvith

,,Yeltsin

'l'lre U.S. seclctaly of state, Warren Christollu. l)ungeon of trts Past." travelecl to Moscow to stand with Yeltsir-r ancl Gaidar ancl de1rlrc,r,

r,llrrcd, "'I'he United States does not easily support the suspension

of

cxtraorclinary titnes'"+E ;rirrliaments. But these arc

A ruiddle-age Muscovite

evcnts looked different in Russia. Yeltsin, the man who had riscn to power by defcnding the parliarnent, had now literally set it on hrr:, leaving it so badly cl'rarred that it was nicknamed the black housc. told a forcign carrrcra crew irr horrot, "People rupportecl lYeltsin] because he pron-rised us denocracv, but he shot up tlurt denrocracy. Not only dicl he violate it, brrt he shot it up."ae Vitaly Nciman, who hacl stood gr-rard at the cntrance of the White House ciurcoup, put thc betrayal tfiis r.vay: "What we got was cntirell tlrc opposite of what we drearnecl of. We went to thc barricades for tlrcm, laid our lives on ti-re li1e, btrt they didn't kecp thcir promises."t0
irrg

,l'he

* ln one of the most remarkable bits of sensational reporting, The Washington Pr, .r noted,'About 200 demonstrators then surged to Russia's Defense Ministry, whlr, the nation's nuctear contro[s are Located and its top generaLs were meeting
raising the absurd prospect that the crowd of Russians attempting to defend thl democracy might start a nuclear war. 'The ministry Locked its doors and kept tlr, crowd out without incident," reported The Post.

the

l99l

290

THF SHOCK {]OCTR NE Firrrk's

BONFIRE OF A YOUNG DFN4OCRACY

291

Jeffrey' Sachs, lauded for proving tl-rat radical free-n'rarket refr,',', cor-rld be cornpatible rvith dernocracy, continlred to publicly srrplr,,,t

Yeltsin after his assatrlt on the parliament, disn'rissing his opponerl', .' "a group of former communists intoxicated by power."5lIn his 1r,,,'l
The E nd of Poverty, in r'vhictr he gives l-ris defi r-ritive account of his
r

"I've chicf economist f<rr Russia, told'I'he wall street lounml. "tl ilr'r. i lrad so tnttclt ftrn in rny lifc Ilre fun was jr-rst beginning. Witl-r the country reeling fron-r tl're atlrrr,li, Yeltsin's owr-r Chiczrgo Boys

ranued tl-rrough the

r-nost con-

r,

volvenent in Rrrssia, Sachs completely glosses over this dr:rnrrrt,, episode, not rrentioning it once, jr-rst as he left or-rt the state of sic arrd attacks on labor leaders that accornpaniecl his shock prograrrr ,',
,

hlge bgdget cuts, the re rnoval of basic food items, including bread, and evetl more ;rrrcc controls on so nrucl't drrrl faster privatizations-the standard policies that cause oFf rcIrrrllrrrt miscry lhat lhey sceril to rccluire :r polit'e stalc to stave
trrrlrous measures in their progran:

Bolivia.5z

lrlllion.
Altter Yeltsin's colrp, Stanley Fiscl-rer, first deputy mar-ragifrg direc-

Fbllowirrg the coup, I{ussia w:rs uncler uncheckecl clictatorial rulc' rt elected boclies u,ere clissolvecl, the Constitutional Court was sr' pended, as was the constitution; tanks patrolled the streets,:l curl, " w:rs irr effect, anci the press faced pervasive censorship, though ti'I liberties wcre soon restorccl.
So r.vhat dicl the Cl-ricago Boys ancl their Westem advisers do at llr,
,

lrr
itrg
, ,rl

()f the

IMF (and a 1970s chicago Boy),

acivocated "moving

i'rs

fast

was help6r Possible on all fronts."55 So did Lawrence Surrrners, who 'I'he "three to sl'rapc Russia policy in thc Clir-rton ach'nirristration.

i0ns,"' as he called
(

thern

Itlreralization-ntust all be conipleted

"privatization, stabilization and "t" as soon as possible

)hange was so rapid that it was irnpossible for Russiarrs to keep up.

critical moment? The sarne thing they did lvl-ien Santiago srnolcler.. , and the sar-ne thing they n'ould clo u'hen Baghdad burned: liberrrl,.,l
I

fronr the rncdclling of democrac),, they went on a law-rnaking birrri,

'l'hree

clays after the corrp, Sacl'rs obsenecl that up to this poir-rt

"tlrt

r,

!\(rrkers often did not cven know that their factories ar-rd mines had (a profound lrt.,'rr solcl-let alone how they had been sold or to whom eorrfusion I would witncss a decade later in the statc-owned factories ol lraq). In tl-reory, all tl-ris wheeling and clealing was suPPosed to crenlt, thc economic boor-r-r tl'rat wor-rld

wils no shock therapy" because the plan was "only incoherentlr'' rrr,,l

lift Russia out of desperation; in

fitfullv put into practicc. Nou' there is a chance to do something," l',

ra id.

"

And clo sonrcthing thcv did. "'l'hese ciays, Yeltsin's liberal er',, norric teanr is trn a roll," reportecl Newsweek. "The day after the Rrrt', iarr presidcnt dissolr,ed Parliarnent, the rvorcl can-re down to ll
market rcfrrrnrers: start u'riting decrees." The rnagazine quoted a " jrr bilant Westcrn cconor.lrist rvorking closely u'ith the governntent" u,lr,,
rnade it absolutely clear that in Russia, democracy was always a lrin

prlctice, the Commr-utist state was sirnp)y replaced with a corporatist orrc: the beneficiaries of the boom werc confincd to a srnall club of and a l(rrssians, many of tl'rcn former communist Part1, apparatctriks, dizzying returt'rs hrrnclful of Western n-rr-ltr-ral fr-rnd n'ranagers who rnade invcsting in nervly privatized Rltssiall companies A clique of nottvt,i[rx billionaires, many of whom were to becotne part of the group rrrriversally known as "the oligarchs" for their imperial levels of wealtl-r

"With Parlian.rer-rt out of the way, this is .r gre:rt tirre for refornr. . .. Thc econonists arouncl here r.vere prcll
clrarrce to tl-re rnarket plan: cleprcssed. Nou'll'e're workir-rg day and night." h'rdeed, there seems
1,,

urr{ power, teamcd up with Yeltsi''s Chicago B'ys a'd stripped t|e r,orrntry of nearly everything of value, rnoving the cnorurous profits gl'lshore at a rate of $2 billion a montl'r. Before s|ock therapy, Russta I[rd no [rillionaires; by 2003, the number of Russian billionaires had
rrscn to seventeen, according to thc Forbas list.s-

be nothing quite as cheering as a coup, as Charles Blitzer, the Worl,l

292

THE SHOCK DOCTRINE

BONFIRE OF A YOUNG DE[/OCRACY 293

That is partly because, in a rare departure from Chicago St,lr,,,,l orthodoxy, Yeltsin and his tearn did r-rot allow foreign multinalior,,l to buy up Russia's assets directly; they kept the prizes for Russi.r,,
then opened up the newly privatized companies, owned by so-c.;rll,,l oligarchs, to foreign shareholders. The returns were still astrorr,,rr,,

sin faced reelection

in I996,

he was still so unpopuiar and his de-

looked so certain that his advisers toyed with canceling the vote rgcther; a letter signed by a group of Russian bankers published in llrc Russian national newspaPers strongly l-rinted at this possibilho

cal. "Looking for an investment that could gain 2,000 per ccrrt rrr three years?" The Wall Street loumal asked. "Only one stock nr:rrl , offers that I'rope... Russia."58 Many investment banks, inclrrtlrrr; Credit Suisse First Boston, as well as a few deep-pocketed financr, quickly set up dedicated Russian mutual funds.
,
r

Yeltsin's privatization minister, Anatoly Chubais (wl-rom Saclrs 'c described as "a freedom fighter"), becan're one of tl're most out-

rkcn proponents

of the Pinochet option'61 "ln order to have

rcracy in society there must be a dictatorship in power," he pronced.62 It was a direct echo of both the excuses made tor

For the country's oligarchs and foreign investors, only one cl,rr,l loomed on the horizon: Yeltsin's plummeting popularity. The ellr,,
r

ttochet by Chile's Chicago Boys and Deng Xiaoping's pl'rilosophy l,i'iedmanism without the freedom. In the end, the election went ahead and Yeltsin won, thanks to an

of the economic program were so brr-rtal for the average Russian,,rr, the process was so self-evidently corrupt, that his approval ratings l, ll

to the single digits. If Yeltsin was pushed from office, whoevcr r, placed him would likely put a halt to Russia's adventure in extn,rrr, capitalism. Even more worrying for the oligarchs and the "ref<r,,', ers," there would be a strong case for renationalizing many of tl-rc' ,,,, sets that had been handed out under such unconstitutional uolili,,'t
circumstances.

irrated $100 million in financing from oligarchs (thirtythree rcs the legal amount) as well as eight hundred times more coveron olisarch-controlled 'lV stations than his rivals.63 With the :at of a sudden change in government removed, the knockoff icago Boys were able to move to the most contentioLls, aud 'uost lcrative, part of their program: selling off what Lenin had once
"the commanding heigl'rts." l,brty percent of an oil company con-rparable in size to France's irtal was sold for $88 million (Total's sales in 2006 wcre $l9l bil-

In DecembJr

1994, Yeltsin did what so many desperate

lea<1,.r,

have done throughouthistoryto hold on to power: he started a ri;rr

His national security chief, Oleg Lobov, had confided to a legislat,,r "We need a small, victorious war to raise t]re president's ratings,":rrr,l the defense minister predicted that his army could defeat the folt.,

in the breakaway republic of Chechnya in a matter of hours-a cal.,

walk.5e

For a while at least, the plan seemed to work. In its first phase, tlr, Chechen independence movement was partially suppressed, au,l Russian troops took over the already abandoned presidential palat, in Grozny, allowing Yeltsin to declare glclrious victory. It would pror, to be a short-term triurnph, both in Chechnya and in Moscow. Whcr

Nickel. which produced a fifth of the world's r-rickel' *ns sold for $170 million-even thougl-r its profits alone soon teuched $1.5 billion annually. J'he massive oil company Yukos, rich controls n-rore oil than Kuwait, was sold for $309 n'rillion; it earns more than $3 billion in revenue a year' F'ifty-one percent of the oil giant Sidanko went for $130 million; just two years later that stake would be valued on the international n'rarket at $2.8 billion. A huge weapons factory sold for $3 million, the price of a vacarrr). Norilsk

iion home in Aspen.6a

public riches were it was also that, in true rctioned off for a fraction of their worth eorporatist style, they were purchased with public money' As the
Russia's

'l'he scandal wasn't iust that

291

THE SHOCK DOCTRINE

BONF-IRE OF A YOUNG DEN/OCRACY 295

Moscow 'Iines journalists Matt Bivens and Jonas Bernstein pul rl few l-ranci-pickccl men took over Russia's st:rte-developecl oil lr. l,l

for free, as part of a giant shell game in which one arm of gor,,,, ment paid anothcr arm." In a bold act of cooperation betwccrr ll,, politicians selling the ptrblic cor-npanies and the businessurerr 1,,',

prrlrrlization auctions in Bolivia ancl Argcntina. And in lracl aftcr the lrrr';rsion, the U.S. would go even further, attempting to cut the local ehll out oflucrative privatization deals entirely. Wr1,ns Merry, the chief political analvst at tlre L.l.S. cmbassy in
lrl,rs<'ow
t

during tl're key

l,eerrs

of I990 to 1994,

has aclmitted that the

ing thcm, several of Yeltsin's rninisters transferred large srrurt , public nloney, u'l-rich should have gone into the r-rational b:rrrl ,', treasury, into private banks ti'rat hacl been hastily incorporatcrl l, oligarchs.*'I'he state then contrarctecl rvitl-r the sanre banks to r,,', the privatization ar-rctions for the oil fielcls and rnines. The brr',1 ran the attctions, but they aiso bid in ther-n-and sure enouglr, ti,, oligarch-owned banks decicled to makc thernselves the proucl rr, ,, owners of the previously public assets. The rnoney tl'rat they 1>rrl rrl' to buy the shares in thesc public corrpanics was likely the srrrr', public morcv that Yeltsin's rninisters had deposited rvith tlteni t,r, licr.65 In other rvords, tl-re Rr-rssian people frorrted the rnoney frrr ll',
looting of their own country. As one of Russia's "young reforrncrs" put it, wl-ren Russi;r's (},"' mttttists decicled to break up the Soviet LJnion, thev rracle an "(' change [of] power for property."66 fr,rst like his rnentor Pinochcl
Yeltsin's own family greu, exceedingly ricl-r, his chilclren and sevcr:rl
tl-reir spouses appointed to top posts at large privatizccl firms.

in Russia was a stark rur,', "The [J.S. governn-rent chose the ccouotnic over the political.
r'lroic'c between democracy ar-rd market interests

lli'

t,lrose the freeing of priccs, privertization of ir-rdustry, and the cre-

of a rcally unfetterecl, unregulated capitalisrn, and essentially L,'pc'cl that rule of law, civil society, and represent:rtive clerrrocracy t'orrlcl develop somehow autornatically as :r result of that. . . . lJnforIrrrr:rlcly, the choice was to ignore popular will and to press ort with
Bturrr

llrr'policy."68

.l

With oligarchs firnrly in control of tlie key

als, who snapped r-rp large portions.

assets

of the Russi,r,,

state, they opened trp thcir new conpanies to bh-re-chip multinati,r',

In l997, ll.oyal Dutch/Shcll :r,,,1 BP entered into partnerships with two kcv Russian oil giarrt,
tl-re

in Russia in tl'ris period that some "refonrers" couldn't resist gctting in on the action. Incleed, ul llrc llr{)rc than anywhere elsc up to this point, tl're situation in Rttssia exlrusccl the myth of the technocrat, the egghead free-rr.rarkct cconotrrrsl sripposediy irnposing textbook models out of prire conviction. As in Chile ar-rcl Chir-ur, where ran-rpant corruption and ecolronlc rllrck therapy went Lrancl in hand, several of Yeltsin's Chicago lir'lrool ministers and deputy rnirristers ended r-rp losing thcir posts in hrglrlrofile corruption scanclals.6e 'l'hen there were tl-re whiz kids from Harvarcl's Russia Proiecrr, trr,kcd lvitl-r organizing the country's privatizatiotrs and the mutual Ittrrrl market. 'l'he trvo academics rvho hcaded the proiect--Harvard
5r' rrnrch wealth was being made

Clazpronr ancl Sidanko.6T These were highly profitable investrnerrt,

but

r,r,as in the hancls,,l It is an oversigl-rt that llr, IMF' ancl the LJ.S. 'lreasurv would snccessftrlly rectifv in fitrrr,

principal sharc of the r.vealth in Russia

Russian players, not their foreign partners.

crorronics professor Anclrei Shlcifer and his cleputy Jonathan Har't','r'rc discovered to have been clirectly profiting frorn the niarket they *'r'rc busily cre:rting. While Shleifer was the lead aclviser to the ( liriclar teanr on privatization policy, his wife was iuvesting heaivilf irr
lrrivatizecl Russian assets. Hay, :r thirty-vear-old graduate of Harvard l,;rw School, also rnade personal investuents in privatized ll.ussian oil

The two malor oligarch-connected banks were MikhaiL Khodorkovsky's

Barrr,

Menatep and V[adimir Potanin's Uneximbank.

l|rcks, allegedly in direct violation of Harvard's iISAID contract. Ancl

296

lHt

5ft ouK

DocTRINE

| !

w'ire

Fra-,,rvas rrcrpi,rgtrre

rlu1i1,*"::::*JTJ,'..::i]. i,

i
rl
r

rrl>orrt tlc .'-r t"'1",'tl:rrtl tlttcstiotl ,o rr rrrrggirrgltt-t,l

rrrlkL

-',:i:l;,1'.1,^'.

'il';ll?i{i:::i;:f f fii:q:T$::5:

greed while nru''ual fund compa"t '";:i-;i"Jttn.,,"'t ".i;nrarkct,i',,,*,,n,."c1,1aterwife."o",,'",whic1r,'ul...',.,l,:;;,l.i:ll.ili":]i:}:.".Tj:'.$H';:l.,."1obo,,t" ' ce.se rc, open ^ ":: l':l]1.:i]:';';.;,;i.,,',r"r,.r"'t cu'tt;,,,, 1ti:]:::'i: ,'l'i ;tarted,\\'asnranage"l"ru'"ii* startecr,\\asn,.nasecl.ut:f ;li:J::5;:;i:l*fSi: l::l:1:;-lilill,J;';ffi*:*;lt;iti$|{;j$*j Ail icleoiogies are co''nr'-rist 3:,*:l; l.stitute for lnterttrtlt"" "

the lla-rvarcl lll,:" ,,,,,tiu"? ,,t,, tts as asl'",; .r D..--in prnrect. Sachs was S]rlt rl'' '""' ..',,,,.,,tu. ,nacle abundantiy clear **-"ri,arrri,rg S]rl' 5lt lt t' pro ject, prolect, frce. ('l'echnically' [ce. ('['e ch'ically' ice. +h.re, are certai'l1 .rade abu.dautly *oa" abundantiv ctcar. .r \ -..r ?tr;;" :rre certaur 1,o,,r".1 tr,re Russia lriks ,"]',"r" nr" certai'l}' 11r1,,r r;rlt ttr" R.,rrr" , ;;,; ,, ;.i,ii, wtrtvrr "' ^"0 cloes seet'parttcwas 11o r()" thetr sDtlIIoar* {"ri ;;"i;;"'.'rt,rvhic1-ro...r:...A}]onreveI'Sachswasn()lr,,'.lllll.\j..o1Iectec1theirabtlncIarriprivilegesij*::::.1'""",,','*'. Dcr.elo1lrtterrt'rvhiclrno.':::.'.'':..:'^';;^^.vcr.SachswJ5llt,l.'''''.''l...''''.,"...,ll".t".ltllcirabrrndlttt1lrtvttegcs )etteloPnretrr, collected I{owever, Sachs for ro nrra "i att, tirne. i .; ' llrt'y ttrit been iuplic.t"i ar'd Frav,s boss r'd Flav,s "t"'L]-* ..-,,n..e""."rrnroics t6at prottt t-tttu r,,rr,.,,1 rrcoliberals' vorl accept ''''u"' o. the gro.ncl:: WLrrNrrrtr \f(l worki.g ",= u',d.,cive l-,,'r,r" t,""" ur,,, r, . .. acttons'1 .to'"l'llLllll;, -- .-r1,"'.rhlc acttons' t of llre questionable .rf t1'," {lll('5ttt'tta"" tttr ,r-ru , r:.

trl:,u:::::r:l#*#1,, liff:'T:ll;i:i::il11i,,1 "

il';t;;;.lno'

p,',t:r.l,,1l'1.1111."*l*T'"*l..,' "

[;i$:;,li'li::"H:; t:::i['j,),'^*1 :'.'T,:'3H1fi1il:

:J;:,1iil"?;,,

,ft-**#i['J:',l";*i

{ :" ll':l;li\::,rfrt$oo.;.::il:;:*'i;];il:|'r"{;i:'i;;i; il::,..ii::l5lJ':"?ilffi:t'J:::ffi;;J:T,ff:1,ili

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,u ;:i,

:':,'"Tffi ;lq$ ;lt*

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t"r.,l,, ii:ffltrrul;f::il*r:ffit*#,1i:1'' \ atte'rpted,"l^;;l;,
tirat,,Fiav
9400,000

r' \ l,l1;;*i":''3ffi**pl{{{#,**''1;1;.'1*
r,asrer.,iurope-inc,,rcling "i':::J:::'ilrl5m4;l;;;*'""-has n" 1 to u'as conrinitted

" battic,theU'S'iJistrtc.t,:..':--.."li"'.'"s..conspirec1todc1r.'.,.|i''''.,,.,.,*joSoros,sp}ri1arltl-rropiCwoIK''].."::::

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o

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**;.**t*l.lill*:s::ffi:1"i,',
,vork because

1 *.,i:1,,,'.

:;;

"o 'lo"bt

that"Sorc's

fifi:iffi'1r.l:']##:;ffi
F'or n particularlv good ,"'"1-1

ffi[iliHiit.,''***tl;l;r.#;*;::'jl, ili.*+fl##iffi::.l$;ffi'r*i# rr *ii*ll:*:***l*lt***':"l"":::': ';''q*ti1"'t".ffit$;;i,*:1;.'H .;;'ig,""a il;;;;;"rcl :ili',i:il" ;il "'T,']]']iiffiil,;: illore..,'::::,:jl',il*r:**l ' ; l; rTfifJ#11;**::,iliti:lh'::$""ies
",,,, :1, tiors orcapit,,ri,,,,.o,q.,"r

i;Jff:u:il,:1::".1:1,T:r"^"'ryr:,:,;;iil1T*"'o'i.i
ingparrtir-rthefie'21'themsetv''
go to the Ku:>-to" t"*::"-u"]li money didn monev .'i:,1t uJ unrortunaiery, the Untorrunately, settlt selrr' bui back to tne divvy ,'n lraq dr*y. up the privatizarion process corrupt .*r"tioltr,,tation tawsurts American whistre-brower the "whistr e-btower"

' 1 lt*fritt'"j1ffi';"ffi**;"{:'ii'.ffi ;J1",Jiqii_:?ffi*l*;1*;":Ilil1Tll';il1 l*J::Hffill,F:::i::**n:t;::l:l;:?i;i:

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I

,,,,'

",

,t*ttt kr ticrrl

298

THE SHOCK DL]CTRINE

BONFIRE OF A YOUNG DEMOCRACY 299

investir-rg there, or to deny those countries the chance to get lrol,l, some of these funcls." Soros had alreacly purchased shares in Rtts '' '

privatized phone system ir-r 1994, for exarnple (a very bad inveshrr' "t as it turned out), and acquired a piece of a large food complt't "'
poland.Ta In the early days of the fall of
Sacl'rs's

'l'he man put in charge of hunting down the "airirnals" was l{rrssia's prin-re n-rinister, tl're steely and vaguely sirrister Vladimir l'rrlin.*77 Immediately after the . apartnrent bornbings, in latc
Sr'plernber 1999, Putin launchecl air strikes on Chechnya, attacking rrvilian areas. In the new light of terror, the fact that Putin was a rrvcnteen-year veteran of the KCB-the nrost fearecl symbol of the (lrrrrrnunist era-suddenly seernecl reassuring to n-ianv Russians.

cornmur]isrl, Sbros, tltr.t,,| work, had been one of the prime rnovers behind the puslr l'

1,

tl're shock approach to economic transformation. By the late niilc'lr,

howevet, he had an apparent change of heart, becorning one ol ll'' leading critics of shc;ck tl'rerapy aircl directing his foundatiofrs to lr r, ,, NGOs that focus on pr-rtting ar-rticorruption nleasllres in place bt'1"'' priv:rtizations occtlr.

That epiphany celme mnch too late to s:rvc Russia from t.rr'tr',, capitalisn-r. Shock therapy hacl cracked it open to flows of l" sl'rort-tertn specu lative investment and cnrrency tra t li " l-noney
whicl-r are highly profitable. Strch intense specr-rlation meaut tl r:tl
I

With Yeltsin's alcoholism making him increasingly dysfunctional, |rrlin the protector was perfectly positiorred to succeed hirn as prestrlcrrt. Orr Decenrber 31, 1999, with thc war in Chechnya foreclosIttg serious debate, several oligarchs engineer:ed a quiet herndover ftorrr Yeltsir-r to Putin, no electior-rs lrecessary. Before he ieft power, lcltsin took one last page out of the Pinochet plavbook anci detrrirrrded legal in-rmunity for l-rirnself. Putin's first act as president was

trl4rring

a law protecting Yeltsin frorn zrny crinrinal prosecntiorr,

r,,

wlrcther for corruption or for the rnilitary's killing of pro-denrocracy rlt'rrronstrators tl-rat took place on l-ris wertch.

1998, when tl-re Asiair financial crisis (the subiect of chapter startecl spreading, Russia was left wholly ur-rprotectecl' Its alreadv ;"' carious econoll-ly crashed definitivell'' T'he public blamedYeltsirl' rr"'l
I'ris approval rating droppecl to an utterly untenable 6 percent.-5

\\

rll'

1i'ltsin is regarded by history more as a corrupt br-rffoon than a mennt'irrg strongrnan. Yet his econorric policies, and the wars he waged

the futures of rnany of the oligarchs in ieopardy once ageiill, it was r'. ing to take yet ar-rother rnaiclr shock to save the economic proiect :rr"
stavc off the threert of genuine clenocracy coming to Russia'

h'r September 1999, the country was hit with a series of sx1'1 "1 ir-rgly cruel terrorist erttacks: seemir-rgly out of the blue, four aPartll( rl buildings were blown r-rp ir-r the n-riclclle of tl-re night, killilg clost l,, tl'rree hr-rndred people. h'r a narrative all too farniliar to An-rericans ,rl ter September I l , 2001, every otl-rer issue was blasted off the polil i' 'l n-rap by the onlv forcc on earth capable of doir-rg tl're job. "lt was lll
sort of very simple fe;rr," explaitls the Russian iournalistYevgenia \l bats. "All of a sudden, it appe:rred that all tl'rese discussiotls alr,rrrl
democrarcy,,

to protect them, contributed significantlv to tl-re Cliicago St'lrool crusade death toll, which has been rnounting steadily since (llrile in tl-re seventies. hi addition to the casualties of Ycltsin's Octobcr coup, tl-re wars in Cl-rechnya I'rave killed an estinrated 100,000
Itr order
t'ivilians.78 The larger ilrassacres he precipitated have t:rken place in

rlow motion, but their numbers are much l-righer-tl-re "collateral

tl;rrrrage" of econonric shock therapy.

In the absence of major f:rnrine, plagr-re or battle, never have so

trln.ry lost so much in so short a tirne. By 1998, rnore tlrarr B0 percent
r Not surprisingty, given the defiant criminaLity of Russia s ruLing class, conspiracy lhcories swirL around these events. Many Russians betieve that Chechens had nothInq to do with the apartment bombings and that they were a covert operation detlgned to turn Putin into Yettsin's heir apparent.

oligarchs-notl-ring cornpared to this fear to die insi'l'

ti

vtllrr own aDarttttettt."

3OO THE SHOCK

oF

DOCTRINF

BONFiRE OF A YOUNG DEI/OCRACY

301

Russiarr farrns had gone bankrtrpt, and rorrghly severrty tltotts'r"'l I state factories had closed, creating an epidemic of unemploymetrl r,' 1989, before shocktherapy,2 million people in the Russian Fcrl,

suicide rate climb to almost dor-rble what it had been eight years

tion were living in poverty, on less than $4 a day' By tl're tirnc'llr' r r, shock therapists had administered their "bitter nedicine" in the r linc. ,r, nineties, 74 niillion Russians were living below the poverty "econ,,t",' cording to the World Bank. That means that Russia's reforms" can claim credit for the impoverishment of 72 millr,' people in only eightyears- By 1996,25 percent of Russians-altrr" l
r
I

licr. Russians also killed each other with mr-rch greater frequency: 1994, violent crime had increased more than fourfold.s2 "What have our motherland and her people gotten or-rt of the last

l5 t'Liminal years?" \Aadimir Gusev, a Moscow academic, asked at a )0(r democracy demonstration. "The years of crin'rinal capitalisn-r : killed off l0 percent of our population." Russia's population is in dramatic decline-the country is losing roughly 700,000
a year. Between 1992, the first full year of shock therapy, and
Russia's population shrank by 6.6 million.83 Three decades ago,

million people-lived irl poverty described as "desperate'"7e Although millions of Russians have been pulled out of povertr recent years, tl-ranks largely to soaring oil and gas prices, Russia's rrl derclass of extreme poor has remained permanent-with all the sir nesses associated with that discarded status. As miserable as life ttrr,l'
37
r

Gunder Frank, the dissident Chicago economist, wrote a letter

Milton Friedman accusing him of "economic genocide." Many

ssians describe the slow disappearance of their fellow citizens in
r

trilar terms today.

Cornmunism was, with crowded, cold apartmetlts, Russians at lt,r',1 were housed; in 2006 the governlrent admitted that there u t r, 71t,000 honeless kids in Russia, and UNICIiF has put the nutrrl"
as

high as 1.5 n'rillion children.s0 Durirrg the cold war, widespread alcol'rolisrn was always seerr ill llr.'t tl-re West as eviclence that life under Cornmunistn was so dismal Russians neecled large quantities of vodka to get through the tl;rr

Uncler capitalisn-r, however, Russians drink more than twice ''' much alcol,rol as they used to-and tliey are reaching for herr<|, ' painkillers as well. Russia's drugcz,ar,Aleksandr Mikhailov, says llr;rl the nunber of r-rsers went up 900 percent from 1994 to 2004' r" more than 4 million people, many of then-r I'reroir-r addicts. The c| rr' epidernic has contributed to anotirer silent killer: in 1995, fifty tht,r,
sar-rd

'l'his planned misery is made all the more grotesque because the Ith accumr-rlated by the elite is flaunted in Moscow as nowhere outside of a handful of oil emirates. In Russia today, wealth is so tified that the rich and the poor seem to be living not only in diftt countries but in different centuries. One time zone is downr Moscow, transformed in fast-forward into a futuristic rrty-first-century sin city, where oligarchs race around in black es convoys, guarded by top-of-theJir-re mercenary soldiers,
where Western money managers are seduced by the open invest-

HIV positive, and in o[rly two years that nutnlr, doubled; ten years later, according to UNAIDS, nearly a rnilli0r' Russians u ere HIV Positive.sl These are tl,re slow deatl-rs, but there are fast ones as well. As s',,"
Russians were
,

tt rules by day and by on-the-house prostitutes by night. In the rcr tirre zone, a seventeen-year-old provincial girl, asked about her for the future, replied, "Ifs difficult to talk about the twentyrril century when you're sitting here reading by candlelight. The rrtv-first centurv does not rnatter. It's the nineteenth centurv
rc."84

as shock therapy was introduced in 1992, Russia's already higtr "refolms," srltt sr-ricicle rate began to rise; 1994, the peak of Yeltsin's

'l'liis pillage of a country with as much wealth as Russia required reme acts of terror-from the torchine of the parliament to tl-re inion of Chechnya. "Policy that breeds poverty and crirne," writes rgi Arbatov, one of Yeltsin's original (and ignored) economic

3O2

THE SI,lOCK I)OCIRINE

BONFIRF OF A YOUNG DEMOCRACY 303

aclr,isers,

".

. c:ln survive only

if democracy
ir-r

is sr-rppressed."si fusl

,,

,r

hacl been i1

t|e Southern Cone,

Bolivia ur-ider tl're state of sicg,

,'

Clhina cluring'I'iananlnetr.

Just as

it would be in Iraq.

When in Doubt, Btame CorruPtion Rereading westerr-r news reports on Russia's shock therapy perio,l ,i is striking how closeiy discussions at that tirne paralleled dclr,'t,

about ftac1 that

wolld unfold more thal

a decacle later. For botlr ll,,

Clintor-r and Br-rsh Sr. admirristrations, not to mention the Euro;" "' Union, the G7 and tl're IMI'-, the clear goal in Russia was to erast' ll"

preexisting state :rnd create the conditions for a capitalist fcc'1"'

in tltrn would kick-start a boomilg free-tlrrrrl't frenzy, 'r,hich democracy-rnanaged by overconfident Arnericans barely olrl "t scl-rool. In other rvords, it was Iraq witl-rout the explosives. When the zeal for shock therapy in Russia was at its peak, its clrt ' leaders were absofuttely cor-rvinced tfiat only totaj destructiorl of .r, " single institutior-r would create the conclitions for a national rebirtl, the clrearn of the blank slate that wor.rld recur in Baghdad. It is "d.,,', "for Russia to l'' ' 1' able," wrote the Flarvard historian Richard Prpes, or-r disintegrating r-rntil nothing remains of its institutiotlal slrr', tuLes."8(, Ar-rd the Columbia Universiiv economist Richard F}it',,, wrote in I995, "Any reforrn rnust be disruptive on a historicallr ",, precedcnted scale. An entire world rnust be discarded, ir-rcludirrg ,' of its econon'ric and most of its social and political institutions,:rr,'i corrclrrding wilh llre ltltysic.al strtrclrrrc of prodrrctiorr, capital. .r,,'l
r

ltrnvhelrning evidence of rarmpant torture, out-of-cor-rtrol cleath *grr,r,ls and pervasive press censorship. Russia's econornic Progranl ;rlways describe d as "reform," iust as Iraq is perennially under "reti 'r\ lrrrslruction," even after the U.S. contractors have n-rostly all fled, lr,rvirrg the infrastructure in a sharnbles, as the dest'rttction roars on. Itr ltnssia in the mid-nineties, anyone who dared qr-restion the wisrl,rrr <lf "the reforrners" was disniissed as nostalgic for Stalin, iust as trrl ir:s of Iraq's occupation were, for years, rnet with accusations that llrlr thought life was better under Saddanr Hussetn. Wlren it was no longer possible to hide the failures of Russia's rlr,,,'k therapy program, tl're spin turr-red to Rttssia's "culture of corIrrlrlirln," as well as specul:rtion that Russians "aren't ready" for genIrrrrc clemocrzrcy because of tlreir long history of authoritarianism. !\',rsl ington's thinktank economists hastily disavowed the Frankentk'irr economy they lrclped create iIt Russia, deriding it as "mafia tnlritalism"-supposedly a phenomenon peculiar trl tl-re Russian tlr;rrircter. "Nothing good will ever coilte of Russia," The Atlantic Irlontltly reported in 2001, qr-roting a Rr-rssian office worker. In the lns Angeles T-imes, the iournalist and novelist Richard Lourie proIrorrrrced that "the Russians are such a calantitous nation that even
r

*lrt'rr they undertake sornething sane and banal, like voting and rnak'hc ccononrisl Arrders AsIrrg nrorrey. tlrey rnake a lotal haslr of il."o''1
lrrrrrl liad clairned that the "temptatior-rs of capitalism" alone would

h,rrrsfornr Russia, that the sheer power of greed would provide the florrrentum to rebuild the countrv. Asked a few years later what went

technology."st

Anot|er lraq parallel: no matter how baldly Yeltsir-r defied rr"t thing resenibling dernocracy, his rulc was still characterized irr ll', West as part of "a transitiorr to dernocrac,v," a narrative that rvorrl,i change only when Putin began cracking dowtr on thc illegal acli''
ties of several of the oligarchs. Similarlv, the Buslr admir-ristration alwavs portrayed Iracl as on the road to fi-cedon,
lr.,

he replied, "Corruption, corruptiott and corruption," as if rornrption was sonething other than the lrnrestrained expression of llrr' "temptations of capitalisrn" that he had so entll-rsiastically
Ir'r(ln1,

gliriscd.se

e'cn itr t|e fact "l

'l'lre entire cl-rarade wotrld be replayed a decacle latcr io erplair"r ru,';ry the billions of n-rissing reconstruction dollars in lraq, rvitl'r the rhsliguring legacy of Saddam ancl thc pathologies of "radical Islan-r" tlirrrding in for the legacy of f)omrnurrism and czarism. In lraq, U.S.

301

THE SHOCK DOCTRINF

BONFIRT OF A YOUNG DEMOCRACY 305

rage at the apparent ir-rability of f raqis to accept their gift of gr r" 1 " " "freedom" would also turn abusive-except that in Iraq tl r' |
,

'

would not be found only in nasty editorials about "ungrateful" I r ,,1' but would also be pounded out on the bodies of Iraqi civilirrr'
l

U.S. and Britisl"r soldiers.

The real problem with the blame-Russia narrative is that rl empts any seriotts examination of what the whole episodc l" teach about the true face of the crusade for unfettered free nlll, the most powerful political trend of the past tl-rree decades' T'lr' ' ' '' ruption of n'rany of the oligarchs is still spokelr of as an alietr l,', that ir-rfected otherwise worthy free-market plans. Br-rt collrrl)lr, " wasr-r't an intruder to Russia's free-market reforms: quick anrl ,1,,r deals r'vere actively encor,rraged by Western Powers at every slrrt',' the fastest way to kick-start the econon-ry. National salvatior-r tlttr,,,, L the l-rarnessing of greed was the closest thing Russia's Chicago ll,,' and their advisers had to a plan for what they were going to clo rlt' '
1

1'

aclnrired-but with a twist. Rather tltarr iorrrneyir-rg througtr Smith's "s:lvage and barbarous nations" tlrr'rt. llrere was no Western lar,v (no longer a practical optior-r), tl'ris fnr\('nrcnt set or:t to systen'ratically dismantle existing laws. and fegrrlrrlions to re-create that earlier lawlessness. Arrd where Smith's Frrl,rrrists earned their record profits by seiziirg what he described as "||,rrl.' lAnds" for "br-rt a trifle," today's nrr-rltinationals see governmetrt ptr4ir;lnrs, public arssets and everything that is not for sale as terrain to $ , ,,rr<luerecl and seized-the post office, national parks, schools, so.+lrlsccurity, disaster relief and anything else that is publicly adrninishr*.l,rllrcr of today's neolibererls, so
ptr',1."1

llrrder Chicago School ecottot't'tics, the staie acts as the colonial

$lrrl icr, whicl-r corporate cor-rqr-ristadors pillage rvith the same ruthless dt,[,rrrrination arrcl energy as their predecessors showecl r'vhen they

they finisl'red destroying Russia's institutions.

Nor were these catastrophic results unique to Russia; the t'rrl"' thirty-year history of the Chicago School experiment 125 $ss11 ""' of ntass corruptior-r and corporatist collusion between secr,rrity sl rl' and large corporatior-rs, from Chile's piranl'ras, to Argentina's ('r"" privatizations, to Russia's oligarcl-rs, to Enron's energy sl'rell garlr, t' Iraq's "free fraud zone." The point of shock therapy is to opetl r11' window for enormous profits to be made very quickly-not des;'rt' tl-re lawlessness but precisely because of it. "Russia Has Becott,, Klondike for Interr-rational Fund Speculators," ran a headlirrt ,,,
'

the gold ancl silver of tl-re Andes. Where Srnith sarv ftrlrlc green fields turned into profitable farmlands on the PanPas , ltrtl llrc prairies, Wall Street saw "green field opportunitics" in Chile's water , plrorrc systetn, Argentina's airline, Rtlssia's oil fielcls, Bolivia's airwaves, Polancl's factories-all br-rilt : lt.rlt,rrr, the Unitcd States'public t/tllr qxrblic wealth, then sold for a trifle.e2 Then therc are the trearsures t'tr';rlccl by enlisting the state to put a patent and a price tag ort lifehrtrrrs ald natural resources levcr clreamecl of as comltoclities-seeds, grrrt's, carbon in the earth's atrnosphere. By reler-rtlessly searching for llrrv profit frontiers in tlie ptrblic donain, Chicago School econofltsls are like the mapmakers of the colonial era, identif ing new waleru';rys through the Amazorr, rnarking off the location of a hidderr
hnrrl,,rl home
ro, lrc of gold insidc itrr lrrc'a lcrtrple.

a Russian newspaper

1997, whtle Forbes described Russia rrr"l Central Europe as "the new frontier."g0 The colonial-era tertns ri, r, ent irely appropriate. 'l-he n'roverner-rt that Milton Friedman launched in tl"re 1950s is 1,, understood as an attempt by n'rultir-ratior-ral capital to recapturc ll,, highly profitable, lawless frontier that Adani Smith, the intellectrr,rl
t

in

)orruption has been as much a fixttlre on these conternporary ftrlrrliers as it r,vas dtrrirrg the colonial gold rushes. since the rnost llgrrificant privatization deals are always signed arnid tl're tumult a,l rril econornic or political crisis, clear laws and effective rcgrrlafurrs are never in place-the atnrosphere is chaotic, the prices are llt.ril>le ar-rci so are the politicians. What we have beeir Iiving for
(

306

THE SHOCK DOCTRINE

BONFIRE OF A YOUNG DEI'/OCRACY 307

three decacles is frontier capitalisr-n, with the frontier consl:rrrrl shiftirrg local ion frorrr crisis to crisis, rttovirrg olt as sootl as llr, I'
catches up.

I t
I

And so, far frorn acting as a catttiot-tary tale, the rise of Rttt", billionaire oligarcl-rs proved precisely how profitable the strip tlrr,,,, of an inclustrializecl state could be-and Wall Street wauted trt,,', Imr-r-rediately following the Soviet collapse, the U.S. 'l-reasury atrtl tl,' IMF became much tougher in their dernands for instant privrrlr. tions frorn other crisis-racked countries. The rnost drarnatic c:ts, I' date came in 1994, the year after Yeltsin's cotlp, when Mexi,,, economy sr-rffered a n'raior meltdown known as the Teqr,rila (lrr"' thc terms of the U.S. bailout dernar-rdecl rapid-fire privatizationS,:ttr'l h'orbes announced that the process had rninted twenty-three nov l''l lionaires. "The lessor-r here is fairly obvious: to predict whencc' ll,' next bursts of billionaires will issue, look for countries where rt,,,, kets are opening." It also cracked Mexico open to unPrecedcrrl,,l foreign ownersl'rip: in I990, only one of Mexico's banks was fort 'r',' owned, but "by 2000 twenty-four out of thirty were in fort''r',, hands."er Clearly the or-rly lesson learned from Russia is that tl,, faster ar-rd rnore lawless the transfer of wealth, the more profital)I, ,i
, ,

Commr-rnicatior-rs Corp., Exxott Corp. and Salonort Inc. They have been invitecl by the Bolivians to rcwrite Ftlllrcrs ldu'o governing the sectors to be privatized and to bid on the com"Tl're irnportant thing is lriur('s on the block"-a tidy arrangement. hrrt'r,
hr rrurke

MCI

these ch;rnges irreversible and to get thern done before the

kick in," said President Sdncl-rez de Lozada, explaining rlrock therapy approach. To make absolutely sure ttrose "antihtr hr,lics" didn't kick in, Bolivia's government did sornething it had drrrc before under similar circumstances: it imposed yet another -prolorrged "state of siege" that banned political gatherings ancl au,trl rlroclies
tlror

ized the arrest of all opponents of the process.e5

'l'lrese were also the years of Argentina's notoriously corrupt privati-

lnlioir circus, hailed as "A Bravo New World" in an investrnent report by ( loldman Sachs. Carlos Menetn, the Peronist presiclent who came ftr lxrwer promising to be tlie voice of the working nlan, was in cl-rarge
dttrirrg those years, downsizing and then selling the oil fields, tlie plrorre system, the airline, the trains, the airport, the highways, the water system, the banks, the Buenos Aires zoo and, eventltally, the post

ttflicc and the national pension plan. As the country's wealth moved ollshore, the lifestyles of Argentir-ra's politicians grew incteasingly lav-

will be. One persor-t wl-ro unclerstood that was Gonzalo Sdncbez

,l'

l:lr, Menern, once known for his leather iackets ancl working-class tklcburns, began wearing Italian suits and reporteclly rnaking trips to
tlrc plastic sllrgeon ("a bee sting" is l-row I're explained his swollen feahtrcs). Maria |ulia Alsogaray, Menem's rninister

Lozada (Goni), the businessman in whose livir-rg roorr-r the Bolir i r,, shock tlierapy plan had been drafted in 1985. As president of tl,,

in charge of privatizaa brigl'it red

conntry in the rnid-r-rineties, he sold off Bolivia's national oil cor,, pany, as well as the national airline, railway, electricity and ph,,',' cornpanies. tlnlike what transpired in Russia, where the bigg prizes were awarded to locals, the winners of Bolivia's fire salc ',, cluded Enton, Royal l)utch/Shell, Amoco Corp. and Citicorlr and the sales lvere direct; there was no need to partner with lor,,l
r

tiorr, posed for the cover of a popular rnagazine wearing nothir-rg br-rt
nrr

lrtfully draped fur coat, while Menerr began driving

firms.e4 The Wall Street lournal described the Wild West scenc r', La Paz ir-r 199 5 : "The Radiss on Plaza Hotel is crammed with ext ,
r-rtives

"gift" from a grateftrl bttsinessnan.e6 'l-he countries that emulatecl Russia's privatizations also experretrced rnilder versions of Yeltsin's coups-in-reversc-governttents tlrlt came to power peacefully and, through elections, founcl thernrlves resorting to increasing ievels of brutality to hold on to power
F'crrari Testarossa-a
errd

defend tl'reir reforms. In Argentina, the rule of unfettered neolib-

frorn nrajor U.S. cornpanies like AMR Corp.'s American

Arr

'erirlisn ended on Decen-rber 19,2001, rvhen President Fernar-rdo dc

308

THE SHOCK DOCTRINE

BONFIRE OF A YOUNG DEl\/OCRACY 309

la Rfa ancl his finance inir-rister, Domingo Cavallo, tried to irrr;,,, fr-rrther lMFlrescribed austerity ilteasllres. Tl're population revo l l,, ar-rd de la Rira sent in federal poiice on orders to disperse the crorr ' by whatever rreairs were reqttired. De la l{fia was forced to flec r,'

pflt'r the profits have allbeen moved offshore is really just a way of lel i

galizing the theft ex post facto, much as the European colonizers lnt'licd in their lar-rd grabs witl-r treaties. Lawlessness or-r the fror.rtier, as
'

Arl;rrrr Smitl-r understoocl, is not tl-re problem but the point, as n'ruch a

helicopter, but not before twenty-one protesters were killecl bv p,,1,, and 1,350 people were injured.e7 Goni's last ntonths and days irr ,,r

lrirtof the game

lrt'llcr next time.

as the cor-rtrite har-rd-wringingar-rd the pledges to do

fice were even bloodier. F{is privatizatioirs sparked a series of "u;rr in Bolivia: first the water lvat, against Bechtel's w:rter cotrtract llrrr
sent prices soaring 300 percent; then a "tax lvzrr":rg:rir-rst atr l\ll prescribed plarn to rrakc r-rp a buclget shortfall by taxing the worl.,,, poor; then the "gas wars" :rgainst I'ris plans to export gas to the U.S l',
the end, Goni was also forced to flee the presidential palace to lir, ,', exile in tl'rc U.S., but, as in de lar Rira's case, not before n-ran1'lir, were lost. After Gor-ri ordered the military to put clown street dettt,,r,

strations, solclicrs killed close to seventv people-rnany of tlr, ,,, byst:rnders-and injured four hundred others. As of early 2007, (),",' was wanted by Bolivia's Supreure Court on charges relating ttt ll,,
rnassacre.9E

The regimes that ir-nposed mass prirratization on Argentitra rrr,,l Bolivia were both helcl up in Washington as examples of horv sl r,,, therapy could be irnposed peacefully and democrartically, tr.'itlr,rrt coups or repression. Although it's true thart they dicl not begin in a I r, r' of gur-rfire , it is sr-rrely significar-rt that botl-r er-rdecl iu one.
l

In much of tiie Sonthern Hemisphere, neoliberalism is freqtrcrrtl' spoken of as "the second colonial pillage": in the first pillagc, tl, riches were seizecl from the lancl, and in the seconcl they llt,,
frorl the state. After every one of these profit frenzieS corrr, the pronrises: next tirne, there will be firrn laws in placc befor, ., countrv's assets are sold off, ancl the entire process will be watclr,,l
stripped
over by eagle-eyecl regttlators and investigators with unimpeach:rl,l, ethics. Next tirne ti-rere will bc "ir-rstitution building" before privatiz,r

tions (to use the post-Russi:r parlar-rce). But calling fbr law and

or.tl,