Dr Friedman and Mr Hyde: The Rise of Disaster Polemics

Naomi Klein’s attack on Milton Friedman misses its target, writes Johan Norberg

Canadian author Naomi Klein’s book The Shock Doctrine: The Rise of Disaster Capitalism is a bible for anti-capitalist activists that has also won praise from established reviewers. In a Guardian review reprinted in the Sydney Morning Herald, John Gray explained that ‘there are very few books that really help us understand the present. The Shock Doctrine is one of those books.’ In the New York Times, Nobel laureate Joseph Stiglitz wrote that it is ‘a rich description of the political machinations required to force unsavoury economic policies on resisting countries.’

Klein’s thesis is that economic liberalisation is unpopular, and therefore it can only win by deceiving or coercing voters. In particular, free-market ideas rely on crises. In a time of a natural disaster, a war or a military coup, when people are disoriented, confused, and fighting for their own immediate survival, then corporations, politicians, and economists can push through trade liberalisation, privatisation, and lower public spending. According to Klein, ‘neo-liberal’ economists welcomed hurricane Katrina, the tsunami, the Iraq War and the South American military coups in the 1970s as opportunities to erase past policies and introduce radical free-market models. The villain in Klein’s story is Milton Friedman, the Chicago economist who did more than anyone in the twentieth century to popularise free market economics. She portrays the mild-mannered and freedom-loving Dr Friedman as a cold-hearted, warmongering Mr Hyde.

Dr Friedman and Mr Hyde
Klein’s exhibit A against Friedman is a quote from ‘one of his most influential essays’:

Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable. (6)(1)

The quote is not from one of Friedman’s most influential essays, but from a new and very brief introduction to the 1982 edition of Capitalism and Freedom.(2) And it’s not about welcoming disasters. From the example Friedman gave, that interest in free markets grew as communism failed in China and the Soviet Union, and the United States and United Kingdom suffered from stagflation, it is obvious that Friedman was not advocating shocks and crises to force anyone to abandon their old ways. He was merely observing that people themselves demanded change when old ways failed. But in the rest of the book, Klein pretends that she has proved that Friedman was in favour of deliberately promoting crises. This is ‘the shock doctrine’, the source of inspiration for all those reformers who apparently welcome conflicts, disasters, and war.

Klein’s supporting quotes to strengthen her interpretation are taken out of context in the same manner. She takes Friedman’s concept of ‘the tyranny of the status quo’ as the tyranny of voters, with a crisis needed for politicians to bypass the democratic process (6f). For Friedman, the tyranny of the status quo was something entirely different—an iron triangle of politicians, bureaucrats and special interest groups (businesses, for example) who advance their own welfare at the voters’ expense.(3)

Of Friedman’s suggestions to reduce inflation, Klein writes,

Friedman predicted that the speed, suddenness and scope of the economic shifts would provoke psychological reactions in the public that ‘facilitate the adjustment. (7)

This gives the impression that Friedman wanted to incur pain to disorient people and push his reforms through. But the quote in its entirety shows that Friedman had something very different in mind. He actually wrote that if a government chooses to attack inflation in this way,

I believe that it should be announced publicly in great detail … The more fully the public is informed, the more will its reactions facilitate the adjustment.(4)

In other words, if the public is not ignorant, and not disoriented, but fully informed of the reform steps, they would facilitate the adjustment by changing their behaviour when it comes to negotiations, saving, consuming, and so on. Friedman’s view was the complete opposite of what Klein pretends it is.(5)

Six days in Chile
Klein cites the influence Milton Friedman’s economic views had on Augusto Pinochet’s military dictatorship in Chile in the 1970s as evidence that free markets rely on tyranny and torture. She writes that Friedman acted as ‘adviser to the Chilean dictator’ (7). This is wrong. Friedman never worked as an adviser to, and never accepted a penny from, the Chilean regime. He turned down two honorary degrees from Chilean universities that received government funding because he thought it could be interpreted as support for the regime.

However, Friedman was in Chile for six days in March 1975 to give public lectures. He had been invited by a private foundation. While there, he met once with Pinochet for around forty-five minutes, and wrote him a letter afterwards arguing for a plan to end hyperinflation and liberalise the economy. This was the same kind of advice Friedman gave to communist dictatorships like the Soviet Union, China, and Yugoslavia, yet nobody would claim he was a communist.

According to Klein, Friedman did not care about the social cost of ending hyperinflation—probably to strengthen the impression that he wanted to shock people and let the military deal with any opposition. She never mentions that he suggested reforms that would lower temporary unemployment or that one of his recommendations was to create a relief program for Chileans who suffered unemployment and distress.(6)

Klein writes that the Chilean coup in 1973 was a neoliberal one, executed so that Chilean liberal economists (‘the Chicago Boys’) could reform the economy. This is to give the impression that neoliberals have blood on their hands, since the most violent period was shortly after the coup. To do that she has to invent a new chronology and claim that the liberalisation began when the junta took power (117). This creates a big problem for her. If so, it is impossible for her to claim that Friedman’s visit was of such tremendous importance, because that didn’t take place until eighteen months later. She tries to have her cake and eat it too.

The reality was that initially, military officials were in charge of the economy. They were often corporatist and paternalist, and opposed the Chicago Boys’ ideas about radical reforms. It wasn’t until this way of governing the economy led to runaway inflation that Pinochet threw his weight behind liberalisation and gave civilians ministerial positions. Their success in the fight against inflation impressed Pinochet, so they were given a larger role.(7) Klein could have used the real chronology to blame Friedman for going to a dictatorship that tortured its opponents—the traditional criticism—but that is not enough for her. To find support for her thesis that economic liberalism needs violence, she has to make it look like torture and violence was the outcome of Friedman’s ideas.

Several chapters after she has given readers the impression that Friedman supported Pinochet, Klein admits with a brief quote that Friedman did not support Pinochet’s authoritarian policies (117). That is a rather weak description of his disagreement with a regime he called ‘terrible’ and ‘despicable.’(8)

Klein claims that Friedman’s definition of freedom meant that ‘political freedoms were incidental, even unnecessary, compared with the freedom of unrestricted commerce.’ (185) That was not Friedman’s view. He thought that political and economic freedom really are related, and that it would be easy for dictators to rule impoverished people fighting for their survival, whereas richer people in a growing economy would begin to demand political rights. From Friedman’s perspective, an important reason for him to try to get both communists and military regimes to accept liberal economic policies was that it would increase the chance that they would become democratic. As he wrote in 1975,

I approve of none of these authoritarian regimes—neither the Communist regimes of Russia and Yugoslavia nor the military juntas of Chile and Brazil … I do not regard visiting any of them as an endorsement … I do not regard giving advice on economic policy as immoral if the conditions seem to me to be such that economic improvement would contribute both to the well-being of the ordinary people and to the chance of movement toward a politically free society.(9)

Friedman’s hopes that economic liberalisation would lead to political liberalisation might not always have been realised (though they were in Chile’s case), but it is not honest to pretend that he didn’t have this view so as to give the impression that he didn’t care about democracy.

Making violence liberal
The essence of Klein’s argument is that free-market reforms more than just coexist comfortably with the most brutal dictatorships. In Klein’s world, the brutality of authoritarian regimes becomes a way for the ruling class to force through liberal economic reforms. It is important for her that Chile is not an exception, because if it was it could be used to support Friedman’s thought that a successful economy could moderate the regime and in the end restore democracy. Therefore Klein makes the case that several other brutal dictatorships were liberal reformers as well.

One example is the Argentinean military dictatorship that ruled from 1976 to 1983. She claims that the southern part of Latin America is where ‘contemporary capitalism was born’ (97), and she even calls the two countries ‘Chicago School juntas’ (90). There were advisers from the University of Chicago in Argentina—there is strong demand for Chicago economists so they have been in many places, which provides Klein’s conspiracy theory with a lot of material. But Argentina’s free market reforms were barely noticeable. In the Fraser Institute’s Economic Freedom of the World (EFW) index, which ranks countries between 1 (the least free) and 10 (the most free), Argentina moved from 3.25 in 1975 to 3.86 in 1985. It is interesting to compare this with economic freedom in countries that Klein mentions as good alternatives to the brutal ‘neo-liberal’ models, because this score leaves Argentina a long, long way from Sweden, a country she thinks represents ‘democratic socialism’, which went from 5.62 to 6.63 between 1975 and 1985 (450), and from Malaysia, one of the ‘mixed, managed economies’ she prefers (267), which went from 6.43 to 7.13. But Argentina was the country with torture, so in Klein’s world, it has to be the more economically liberal.

According to Klein, Latin America’s Southern Cone was ‘the first place where the contemporary religion of unfettered free markets escaped from the basement workshops of the University of Chicago and was applied in the real world’ (102). In fact, after the military dictatorship supposedly applied those ideas with religious zeal, Argentina’s economy was less free-market than all Eastern European communist economies tracked by EFW, including Poland, Hungary, and Romania.(10)

Klein sees China as another example of a country where the leaders have adopted Friedman’s ideas and enforced market reform in a violent manner. To make her case, she rewrites the history of the Tiananmen Square massacre of 1989. She claims that the protesters were primarily opposed to economic liberalisation, and that the Communist Party, led by Deng Xiaoping, attacked them to save its free-market program and move on with the most sweeping reforms yet while people were still in shock.

But if the students were protesting against economic reform, they seldom expressed this grievance. Instead, they demonstrated in favour of democracy, government transparency, and equality before the law, and against bureaucracy and violence.(11) The real picture is very different from the one Klein paints. The protesters started to gather to mourn the former secretary general Hu Yaobang, one of the most important reformers. These students and intellectuals wanted democratic reforms, specifically to secure free speech. The protests grew and included everybody who wanted democratic reform, both those who wanted more economic reform and those who wanted less (the element that Klein equates with the whole protest).

There are no indications that the majority of party elders decided to end the demonstrations by force because they wanted to save the free-market project as Klein claims. They wanted to save the party’s power, and the majority was made up of economic conservatives who were sceptical towards liberalisation. Some even refused to visit the free-trade zones on principle.(12) And the reforms did not accelerate after the massacre, as Klein writes. For the first time since their inception, they stalled.

The most consistent free-marketer in the leadership, General Secretary Zhao Ziyang, was purged because he supported the protesters, and spent the rest of his life under house arrest. Friedman met him in Beijing in 1988, and wrote him a letter of advice, another meeting with a tyrant that Klein blames him for. Zhao’s rivals, including Premier Li Peng, who was pushing for a violent crackdown on the protesters, now tried to roll the market reforms back and reintroduce controls on the economy. The conservatives blamed the unrest on openness, and Deng’s position in the party was weakened. Far from being the start of shock therapy, Tiananmen Square was almost the end of economic liberalisation in China. Klein writes that ‘Tiananmen paved the way for a radical transformation free from fear of rebellion’ (189), but according to EFW, China was actually less economically open in 1990 than it was in 1985 (from 5.11 to 4.91).

Klein fakes the chronology and she knows it, because she writes that Deng opened the Chinese economy ‘in the three years immediately following the bloodbath’ (190). She has to change the meaning of ‘immediate’ into ‘three years,’ because for three years after Tiananmen Square, there was a reform vacuum. This forced Deng to try to jumpstart liberalisation in a public way in the spring of 1992, even though he had formally retired and was eighty-seven years old. This ‘southern tour’ was a trip filled with speeches and networking to save the reform program. The trip was not reported in the national media at first, because that was controlled by Deng’s rivals. Deng even found himself forced to write articles supporting his agenda under a pen name to get access. But he was successful in winning local support and building alliances with provincial governors who were in favour of liberalisation. Only when this happened did a reluctant President Jiang Zemin decide to support Deng.

What’s left?
If we strip away obvious distortions and misunderstandings, there is not much left of the arguments against libertarianism and Milton Friedman in The Shock Doctrine. Is her claim against a movement really that its guru economist used crises to get people to buy his ideas and flattered fascist and communist dictators to get their support?

Nothing in The Shock Doctrine suggests that Klein thinks that there is something wrong with using crises to promote your ideas. Klein herself has never hesitated to suggest her own solutions to problems after Hurricane Katrina or the Iraq War, and she would never dream of considering it as cynically taking advantage of suffering people to implement her own theories. She would say that it was a way of helping others. Her only reason for thinking it cynical and evil when libertarians do exactly the same thing is that she thinks that their ideas are evil and produce horrible consequences.

And Klein herself has nice things to say about dictators. She has nothing but praise for Cuba (456), Che Guevara (104, 443) and Hezbollah (461f) when she mentions them in the book, and has defended the Iraqi fascist Islamist leader Muqtada al-Sadr as representing the mainstream of Iraq and fighting only in self-defence.(13) And the leaders who implement the ‘economic nationalism’ Klein asks for are people like Russia’s Vladimir Putin, Venezuela’s Hugo Chavéz, and Iran’s Mahmoud Ahmedinejad, who do it while dismantling independent and democratic institutions. In other words, Klein does not seem to mind dictators, fascists, and murderers, as long as they don’t reduce taxes and trade barriers.(14)

Klein’s argument depends on the assumption that free markets are bad. Astonishingly, in a book of more than 500 pages, Klein gives almost no argument to the person who isn’t already convinced of this. She does give a few examples of poverty and unemployment increasing soon after the collapse of a planned economy, or soon after hyperinflation has been brought down. But that is not strange, and often it is precisely what economists would predict. However, they would also say that this is the only way to reduce poverty and unemployment in the long run. And that is precisely why Klein never provides the reader with any data over a longer period. She says that the reforms turned the Chilean working class into ‘the disposable poor,’ but never once admits that Chile is the social and economic success story in Latin America and has virtually abolished extreme poverty. She writes that reforms have increased income gaps between cities and rural areas in China, but she never mentions that this development also led to the biggest poverty reduction in history.

In two instances, Klein does briefly mention the broad picture and the long run. They are variations on the same claim—that between 25% and 60% of the population is discarded or becomes a permanent underclass in countries that liberalise their economies (405 and 442). A look at the EFW data shows that Klein has it backwards. Poverty and unemployment is the lowest in the countries with the most economic freedom. In the freest fifth of countries, poverty according to the United Nations is 15.7%, and in the rest of the world it is 29.8%. Unemployment in the freest quintile is 5.2%, which is less than half of what it is in the rest of the world. In the least economically free quintile, filled with the kinds of restrictions on private property, businesses and trade that Klein claims are ways of helping the people against the powerful, poverty is 37.4% and unemployment is at 13%.(15)

Klein writes that global capitalism has lapsed into ‘its most savage form’ since 1990 (252). If she is right about the connection between free markets and deprivation, poverty should have increased at a dramatic speed since then. The opposite has happened. Between 1990 and 2004, extreme poverty in developing countries was reduced from 29% to 18%, according to the World Bank.

This means that extreme poverty has been reduced by 54,000 people every day under ‘savage’ capitalism.(16) And the proportion of people in slums, which is another result of liberalisation according to Klein, has been reduced from 47% to 37% during the same time.(17) Averages doesn’t tell the whole story, so it’s important to point out that the biggest improvements took place in the parts of the world that liberalised the most, whereas we have seen setbacks in the least liberalised countries.

If Klein is right about the connection between free markets and political violence, we should also have seen more war and dictatorships in the era of ‘savage’ capitalism. Klein also insists that ‘the world is becoming less peaceful’ (424).(18) She is wrong. According to the Human Security Centre at the University of Columbia, the number of military conflicts involving at least one state declined from almost fifty in 1990 to thirty-one in 2005.

The number of war deaths in 2005 was the lowest in half a century. In 1990 there were nine ongoing genocides around the world. In 2005, there was only one, in Darfur. Despite a few conspicuous exceptions, the world is becoming more peaceful in the era of ‘savage’ capitalism.(19)

The world has also become more democratic, contrary to the implications of Klein’s thesis. In fact, while markets have been opened the world has simultaneously undergone a democratic revolution. Between 1990 and 2007 the number of electoral democracies increased from 76 to 121. In 1990 there were more countries defined as ‘not free’ by Freedom House than were ranked as ‘free.’ In 2007, there were twice as many ‘free’ countries as there were ‘not free’ countries.(20)

So in the absence of serious arguments against the consequences of free markets, we are left with Klein’s reasonable critique of torture, dictatorships, government corruption, and corporate welfare. Klein has actually written a book that says that Milton Friedman and free markets are bad because governments are incompetent, corrupt, and cruel. If there is a disaster here, it is not one of Milton Friedman’s making. It is probably not a coincidence that there are blurbs from four fiction writers on the back of Klein’s book.

Johan Norberg is a Senior Fellow at the Cato Institute. He gave the CIS John Bonython Lecture in 2005. This article is an abridged version of Cato Institute Briefing Paper 102. Detailed footnotes can be found in that paper, available from www.cato.org.

Endnotes
(1) All the quotes from the book are from Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (London: Allen Lane, 2007)..
(2) Milton Friedman, Capitalism and Freedom (Chicago: Chicago University Press, 1982), ix.
(3) Milton Friedman and Rose Friedman, The Tyranny of the Status Quo (San Diego: Harcourt Brave Jovanovich, 1982).
(4) Milton Friedman and Rose Friedman, Two Lucky People (Chicago: Chicago University Press, 1999), 592, emphasis added.
(5) In her short film The Shock Doctrine, Klein takes this distortion of Friedman one step further: ‘He advised politicians that immediately after a crisis, they should push through all the painful policies at once, before people could regain new footing.’ A transcript of this section of the film is available as part of ‘The Shock Doctrine: Naomi Klein on the Rise of Disaster Capitalism,’ Democracy Now! (17 September 2007), www.naomiklein.org/shock-doctrine/short-film.
(6) Milton Friedman and Rose Friedman, Two Lucky People, 591ff.
(7) Rossana Castiglioni, ‘The Politics of Retrenchment: The Quandaries of Social Protection Under Military Rule in Chile, 1973–1990,’ The Latin American Politics and Society (Winter 2001).
(8) Milton Friedman, ‘Economic Freedom, Human Freedom, Political Freedom’ (address at the Smith Center, 1 November 1991), www.sbe.csuhayward.edu/~sbesc/frlect.html; Milton Friedman, ‘Response,’ Chicago Maroon (3 October 1975), in Milton Friedman and Rose Friedman, Two Lucky People, 595.
(9) As above.
(10) James Gwartney & Robert Lawson, Economic Freedom of the World, (Vancouver,: Fraser Institute). 2007.
(11) See for instance Liu Xiaobo, et al., ‘June 2 Declaration of a Hunger Strike,’ in China’s Search for Democracy: The Students and Mass Movement of 1989, ed. Suzanne Ogden et al., (Armonk, NY: M. E. Sharpe, 1992).
(12) Jonathan Fenby, ‘The Tiananmen Square Peg,’ guardian.co.uk (10 September 2007), www.guardian.co.uk/commentisfree/2007/sep/10/thetiananmensquarepeg.
(13) Naomi Klein, ‘Bring Najaf to New York,’ The Nation (13 September 2004). And if you would criticise Klein with her own methods, you could also make a big fuss about the fact that her European anti-globalisation friends are called Attac.
(14) In passing, she explains that genuine democracy presupposes ‘fair rules preventing corporations from buying elections’ (134), which seems to suggest that it takes some limits on free speech and voluntary association to build her kind of democracy.
(15) James Gwartney and Robert Lawson, Economic Freedom of the World 2005 (Vancouver: Fraser Institute, 2005).
(16) Shaohua Chen and Martin Ravallion, ‘Absolute Poverty Measures for the Developing World, 1981–2004,’ (Washington: World Bank, 2007). These figures might have to be revised down after the World Bank’s recent change in measures of purchasing power of different currencies.
(17) United Nations, The Millennium Development Goals Report 2007 (New York: United Nations, 2007), 26.
(18) Her source only documents that military spending has increased.
(19) Human Security Centre, Human Security Report, 2005 (New York: Oxford University Press, 2005). Human Security Centre, Human Security Brief 2006 (Vancouver: University of British Columbia Human Security Centre, 2006).
(20) Freedom House, Freedom in the World 2008 (Washington: Freedom House, 2008).