Latin America’s Shock Resistance

In Latin America today new crises are being repelled and old shocks are wearing off–a combination of trends that is making the continent not only more resilient in the face of change but also a model for a future far more resistant to the shock doctrine.

In less than two years, the
lease on the largest and most important US military base in Latin
America will run out. The base is in Manta, Ecuador, and Rafael Correa,
the country’s leftist president, has pronounced that he will renew the
lease “on one condition: that they let us put a base in Miami–an
Ecuadorean base. If there is no problem having foreign soldiers on a
country’s soil, surely they’ll let us have an Ecuadorean base in the
United States.”

Since an Ecuadorean military outpost in South Beach is a long shot,
it is very likely that the Manta base, which serves as a staging area
for the “war on drugs,” will soon shut down. Correa’s defiant stand is
not, as some have claimed, about anti-Americanism. Rather, it is part
of a broad range of measures being taken by Latin American governments
to make the continent less vulnerable to externally provoked crises and

This is a crucial development because for the past thirty-five years
in Latin America, such shocks from outside have served to create the
political conditions required to justify the imposition of “shock
therapy”–the constellation of corporate-friendly “emergency” economic
measures like large-scale privatizations and deep cuts to social
spending that debilitate the state in the name of free markets. In one
of his most influential essays, the late economist Milton Friedman
articulated contemporary capitalism’s core tactical nostrum, what I
call the shock doctrine. He observed that “only a crisis–actual or
perceived–produces real change. When that crisis occurs, the actions
that are taken depend on the ideas that are lying around.”

Latin America has always been the prime laboratory for this
doctrine. Friedman first learned how to exploit a large-scale crisis in
the mid-1970s, when he advised Chilean dictator Gen. Augusto Pinochet.
Not only were Chileans in a state of shock following Pinochet’s violent
overthrow of Socialist President Salvador Allende; the country was also
reeling from severe hyperinflation. Friedman advised Pinochet to impose
a rapid-fire transformation of the economy–tax cuts, free trade,
privatized services, cuts to social spending and deregulation. It was
the most extreme capitalist makeover ever attempted, and it became
known as a Chicago School revolution, since so many of Pinochet’s top
aides and ministers had studied under Friedman at the University of
Chicago. A similar process was under way in Uruguay and Brazil, also
with the help of University of Chicago graduates and professors, and a
few years later, in Argentina. These economic shock therapy programs
were facilitated by far less metaphorical shocks–performed in the
region’s many torture cells, often by US-trained soldiers and police,
and directed against those activists who were deemed most likely to
stand in the way of the economic revolution.

In the 1980s and ’90s, as dictatorships gave way to fragile
democracies, Latin America did not escape the shock doctrine. Instead,
new shocks prepared the ground for another round of shock therapy–the
“debt shock” of the early ’80s, followed by a wave of hyperinflation as
well as sudden drops in the prices of commodities on which economies

In Latin America today, however, new crises are being repelled and
old shocks are wearing off–a combination of trends that is making the
continent not only more resilient in the face of change but also a
model for a future far more resistant to the shock doctrine.

When Milton Friedman died last year, the global quest for unfettered
capitalism he helped launch in Chile three decades earlier found itself
in disarray. The obituaries heaped praise on him, but many were imbued
with a sense of fear that Friedman’s death marked the end of an era. In
Canada’s National Post, Terence Corcoran, one of Friedman’s most
devoted disciples, wondered whether the global movement the economist
had inspired could carry on. “As the last great lion of free market
economics, Friedman leaves a void…. There is no one alive today of
equal stature. Will the principles Friedman fought for and articulated
survive over the long term without a new generation of solid,
charismatic and able intellectual leadership? Hard to say.”

It certainly seemed unlikely. Friedman’s intellectual heirs in the
United States–the think-tank neocons who used the crisis of September
11 to launch a booming economy in privatized warfare and “homeland
security”–were at the lowest point in their history. The movement’s
political pinnacle had been the Republicans’ takeover of the US
Congress in 1994; just nine days before Friedman’s death, they lost it
again to a Democratic majority. The three key issues that contributed
to the Republican defeat in the 2006 midterm elections were political
corruption, the mismanagement of the Iraq War and the perception, best
articulated by Jim Webb, a winning Democratic candidate for the US
Senate, that the country had drifted “toward a class-based system, the
likes of which we have not seen since the nineteenth century.”

Nowhere, however, was the economic project in deeper crisis than
where it had started: Latin America. Washington has always regarded
democratic socialism as a greater challenge than totalitarian
Communism, which was easy to vilify and made for a handy enemy. In the
1960s and ’70s, the favored tactic for dealing with the inconvenient
popularity of economic nationalism and democratic socialism was to try
to equate them with Stalinism, deliberately blurring the clear
differences between the worldviews. A stark example of this strategy
comes from the early days of the Chicago crusade, deep inside the
declassified Chile documents. Despite the CIA-funded propaganda
campaign painting Allende as a Soviet-style dictator, Washington’s real
concerns about the Allende victory were relayed by Henry Kissinger in a
1970 memo to Nixon: “The example of a successful elected Marxist
government in Chile would surely have an impact on–and even precedent
value for–other parts of the world, especially in Italy; the imitative
spread of similar phenomena elsewhere would in turn significantly
affect the world balance and our own position in it.” In other words,
Allende needed to be taken out before his democratic third way spread.

But the dream Allende represented was never defeated. It was
temporarily silenced, pushed under the surface by fear. Which is why,
as Latin America now emerges from its decades of shock, the old ideas
are bubbling back up–along with the “imitative spread” Kissinger so

By 2001 the shift had become impossible to ignore. In the mid-’70s,
Argentina’s legendary investigative journalist Rodolfo Walsh had
regarded the ascendancy of Chicago School economics under junta rule as
a setback, not a lasting defeat, for the left. The terror tactics used
by the military had put his country into a state of shock, but Walsh
knew that shock, by its very nature, is a temporary state. Before he
was gunned down by Argentine security agents on the streets of Buenos
Aires in 1977, Walsh estimated that it would take twenty to thirty
years until the effects of the terror receded and Argentines regained
their footing, courage and confidence, ready once again to fight for
economic and social equality. It was in 2001, twenty-four years later,
that Argentina erupted in protest against IMF-prescribed austerity
measures and then proceeded to force out five presidents in only three

“The dictatorship just ended!” people declared at the time. They
meant that it had taken seventeen years of democracy for the legacy of
terror to fade–just as Walsh had predicted.

In the years since, that renewed courage has spread to other former
shock labs in the region. And as people shed the collective fear that
was first instilled with tanks and cattle prods, with sudden flights of
capital and brutal cutbacks, many are demanding more democracy and more
control over markets. These demands represent the greatest threat to
Friedman’s legacy because they challenge his central claim: that
capitalism and freedom are part of the same indivisible project.

The staunchest opponents of neoliberal economics in Latin America
have been winning election after election. Venezuelan president Hugo
Chávez, running on a platform of “Twenty-First-Century Socialism,” was
re-elected in 2006 for a third term with 63 percent of the vote.
Despite attempts by the Bush Administration to paint Venezuela as a
pseudo-democracy, a poll that year found 57 percent of Venezuelans
happy with the state of their democracy, an approval rating on the
continent second only to Uruguay’s, where the left-wing coalition party
Frente Amplio had been elected to government and where a series of
referendums had blocked major privatizations. In other words, in the
two Latin American states where voting had resulted in real challenges
to the Washington Consensus, citizens had renewed their faith in the
power of democracy to improve their lives.

Ever since the Argentine collapse in 2001, opposition to
privatization has become the defining issue of the continent, able to
make governments and break them; by late 2006, it was practically
creating a domino effect. Luiz Inácio Lula da Silva was re-elected as
president of Brazil largely because he turned the vote into a
referendum on privatization. His opponent, from the party responsible
for Brazil’s major sell-offs in the ’90s, resorted to dressing up like
a socialist NASCAR driver, wearing a jacket and baseball hat covered in
logos from the public companies that had not yet been sold. Voters
weren’t persuaded, and Lula got 61 percent of the vote. Shortly
afterward in Nicaragua, Daniel Ortega, former head of the Sandinistas,
made the country’s frequent blackouts the center of his winning
campaign; the sale of the national electricity company to the Spanish
firm Unión Fenosa after Hurricane Mitch, he asserted, was the source of
the problem. “Who brought Unión Fenosa to this country?” he bellowed.
“The government of the rich did, those who are in the service of
barbarian capitalism.”

In November 2006, Ecuador’s presidential elections turned into a
similar ideological battleground. Rafael Correa, a 43-year-old
left-wing economist, won the vote against Álvaro Noboa, a banana tycoon
and one of the richest men in the country. With Twisted Sister’s “We’re
Not Gonna Take It” as his official campaign song, Correa called for the
country “to overcome all the fallacies of neoliberalism.” When he won,
the new president of Ecuador declared himself “no fan of Milton
Friedman.” By then, Bolivian President Evo Morales was already
approaching the end of his first year in office. After sending in the
army to take back the gas fields from “plunder” by multinationals, he
moved on to nationalize parts of the mining sector. That year in Chile,
under the leadership of President Michelle Bachelet–who had been a
prisoner under Pinochet–high school students staged a wave of militant
protests against the two-tiered educational system introduced by the
Chicago Boys. The country’s copper miners soon followed with strikes of
their own.

In December 2006, a month after Friedman’s death, Latin America’s
leaders gathered for a historic summit in Bolivia, held in the city of
Cochabamba, where a popular uprising against water privatization had
forced Bechtel out of the country several years earlier. Morales began
the proceedings with a vow to close “the open veins of Latin America.”
It was a reference to Eduardo Galeano’s book Open Veins of Latin
America: Five Centuries of the Pillage of a Continent, a lyrical
accounting of the violent plunder that had turned a rich continent into
a poor one. The book was published in 1971, two years before Allende
was overthrown for daring to try to close those open veins by
nationalizing his country’s copper mines. That event ushered in a new
era of furious pillage, during which the structures built by the
continent’s developmentalist movements were sacked, stripped and sold

Today Latin Americans are picking up the project that was so
brutally interrupted all those years ago. Many of the policies cropping
up are familiar: nationalization of key sectors of the economy, land
reform, major investments in education, literacy and healthcare. These
are not revolutionary ideas, but in their unapologetic vision of a
government that helps reach for equality, they are certainly a rebuke
to Friedman’s 1975 assertion in a letter to Pinochet that “the major
error, in my opinion, was…to believe that it is possible to do good
with other people’s money.”

Though clearly drawing on a long rebellious history, Latin America’s
contemporary movements are not direct replicas of their predecessors.
Of all the differences, the most striking is an acute awareness of the
need for protection from the shocks that worked in the past–the coups,
the foreign shock therapists, the US-trained torturers, as well as the
debt shocks and currency collapses. Latin America’s mass movements,
which have powered the wave of election victories for left-wing
candidates, are learning how to build shock absorbers into their
organizing models. They are, for example, less centralized than in the
’60s, making it harder to demobilize whole movements by eliminating a
few leaders. Despite the overwhelming cult of personality surrounding
Chávez, and his controversial moves to centralize power at the state
level, the progressive networks in Venezuela are at the same time
highly decentralized, with power dispersed at the grassroots and
community levels, through thousands of neighborhood councils and
co-ops. In Bolivia, the indigenous people’s movements that put Morales
in office function similarly and have made it clear that Morales does
not have their unconditional support: the barrios will back him as long
as he stays true to his democratic mandate, and not a moment longer.
This kind of network approach is what allowed Chávez to survive the
2002 coup attempt: when their revolution was threatened, his supporters
poured down from the shantytowns surrounding Caracas to demand his
reinstatement, a kind of popular mobilization that did not happen
during the coups of the ’70s.

Latin America’s new leaders are also taking bold measures to block
any future US-backed coups that could attempt to undermine their
democratic victories. Chávez has let it be known that if an extremist
right-wing element in Bolivia’s Santa Cruz province makes good on its
threats against Morales’s government, Venezuelan troops will help
defend Bolivia’s democracy. Meanwhile, the governments of Venezuela,
Costa Rica, Argentina, Uruguay and Bolivia have all announced that they
will no longer send students to the School of the Americas (now called
the Western Hemisphere Institute for Security Cooperation)–the infamous
police and military training center in Fort Benning, Georgia, where so
many of the continent’s notorious killers learned the latest in
“counterterrorism” techniques, then promptly directed them against
farmers in El Salvador and auto workers in Argentina. Ecuador, in
addition to closing the US military base, also looks set to cut its
ties with the school. It’s hard to overstate the importance of these
developments. If the US military loses its bases and training programs,
its power to inflict shocks on the continent will be greatly eroded.

The new leaders in Latin America are also becoming better prepared
for the kinds of shocks produced by volatile markets. One of the most
destabilizing forces of recent decades has been the speed with which
capital can pick up and move, or how a sudden drop in commodity prices
can devastate an entire agricultural sector. But in much of Latin
America these shocks have already happened, leaving behind ghostly
industrial suburbs and huge stretches of fallow farmland. The task of
the region’s new left, therefore, has become a matter of taking the
detritus of globalization and putting it back to work. In Brazil, the
phenomenon is best seen in the million and a half farmers of the
Landless Peoples Movement (MST), who have formed hundreds of
cooperatives to reclaim unused land. In Argentina, it is clearest in
the movement of “recovered companies,” 200 bankrupt businesses that
have been resuscitated by their workers, who have turned them into
democratically run cooperatives. For the cooperatives, there is no fear
of facing an economic shock of investors leaving, because the investors
have already left.

Chávez has made the cooperatives in Venezuela a top political
priority, giving them first refusal on government contracts and
offering them economic incentives to trade with one another. By 2006
there were roughly 100,000 cooperatives in the country, employing more
than 700,000 workers. Many are pieces of state infrastructure–toll
booths, highway maintenance, health clinics–handed over to the
communities to run. It’s a reverse of the logic of government
outsourcing: rather than auctioning off pieces of the state to large
corporations and losing democratic control, the people who use the
resources are given the power to manage them, creating, at least in
theory, both jobs and more responsive public services. Chávez’s many
critics have derided these initiatives as handouts and unfair
subsidies, of course. Yet in an era when Halliburton treats the US
government as its personal ATM for six years, withdraws upward of $20
billion in Iraq contracts alone, refuses to hire local workers either
on the Gulf Coast or in Iraq, then expresses its gratitude to US
taxpayers by moving its corporate headquarters to Dubai (with all the
attendant tax and legal benefits), Chávez’s direct subsidies to regular
people look significantly less radical.

Latin America’s most significant protection from future shocks (and
therefore from the shock doctrine) flows from the continent’s emerging
independence from Washington’s financial institutions, the result of
greater integration among regional governments. The Bolivian
Alternative for the Americas (ALBA) is the continent’s retort to the
Free Trade Area of the Americas, the now-buried corporatist dream of a
free-trade zone stretching from Alaska to Tierra del Fuego. Though ALBA
is still in its early stages, Emir Sader, a Brazil-based sociologist,
describes its promise as “a perfect example of genuinely fair trade:
each country provides what it is best placed to produce, in return for
what it most needs, independent of global market prices.” So Bolivia
provides gas at stable discounted prices; Venezuela offers heavily
subsidized oil to poorer countries and shares expertise in developing
reserves; and Cuba sends thousands of doctors to deliver free
healthcare all over the continent, while training students from other
countries at its medical schools.

This is a very different model from the kind of academic exchange
that began at the University of Chicago in the mid-’50s, when hundreds
of Latin American students learned a single rigid ideology and were
sent home to impose it with uniformity across the continent. The major
benefit is that ALBA is essentially a barter system in which countries
decide for themselves what any given commodity or service is worth
rather than letting traders in New York, Chicago or London set the
prices for them. That makes trade less vulnerable to the kind of sudden
price fluctuations that have hurt Latin American economies before.
Surrounded by turbulent financial waters, Latin America is creating a
zone of relative economic calm and predictability, a feat presumed
impossible in the globalization era.

When one country does face a financial shortfall, this increased
integration means that it does not necessarily need to turn to the IMF
or the US Treasury for a bailout. That’s fortunate because the 2006 US
National Security Strategy makes it clear that for Washington, the
shock doctrine is still very much alive: “If crises occur, the IMF’s
response must reinforce each country’s responsibility for its own
economic choices,” the document states. “A refocused IMF will
strengthen market institutions and market discipline over financial
decisions.” This kind of “market discipline” can only be enforced if
governments actually go to Washington for help. As former IMF deputy
managing director Stanley Fischer explained during the Asian financial
crisis, the lender can help only if it is asked, “but when [a country
is] out of money, it hasn’t got many places to turn.” That is no longer
the case. Thanks to high oil prices, Venezuela has emerged as a major
lender to other developing countries, allowing them to do an end run
around Washington. Even more significant, this December will mark the
launch of a regional alternative to the Washington financial
institutions, a “Bank of the South” that will make loans to member
countries and promote economic integration among them.

Now that they can turn elsewhere for help, governments throughout
the region are shunning the IMF, with dramatic consequences. Brazil, so
long shackled to Washington by its enormous debt, is refusing to enter
into a new agreement with the fund. Venezuela is considering
withdrawing from the IMF and the World Bank, and even Argentina,
Washington’s former “model pupil,” has been part of the trend. In his
2007 State of the Union address, President Néstor Kirchner (since
succeeded by his wife, Christina) said that the country’s foreign
creditors had told him, “‘You must have an agreement with the
International Fund to be able to pay the debt.’ We say to them, ‘Sirs,
we are sovereign. We want to pay the debt, but no way in hell are we
going to make an agreement again with the IMF.’” As a result, the IMF,
supremely powerful in the 1980s and ’90s, is no longer a force on the
continent. In 2005 Latin America made up 80 percent of the IMF’s total
lending portfolio; the continent now represents just 1 percent–a sea
change in only two years.

The transformation reaches beyond Latin America. In just three
years, the IMF’s worldwide lending portfolio had shrunk from $81
billion to $11.8 billion, with almost all of that going to Turkey. The
IMF, a pariah in countries where it has treated crises as profit-making
opportunities, is withering away.

The World Bank faces an equally precarious future. In April Correa
revealed that he had suspended all loans from the Bank and declared the
institution’s representative in Ecuador persona non grata–an
extraordinary step. Two years earlier, Correa explained, the World Bank
had used a $100 million loan to defeat economic legislation that would
have redistributed oil revenues to the country’s poor. “Ecuador is a
sovereign country, and we will not stand for extortion from this
international bureaucracy,” he said. Meanwhile, Evo Morales announced
that Bolivia would quit the World Bank’s arbitration court, the body
that allows multinational corporations to sue national governments for
measures that cost them profits. “The governments of Latin America, and
I think the world, never win the cases. The multinationals always win,”
Morales said.

When Paul Wolfowitz was forced to resign as president of the World
Bank in May, it was clear that the institution needed to take desperate
measures to rescue itself from its profound crisis of credibility. In
the midst of the Wolfowitz affair, the Financial Times reported that
when World Bank managers dispensed advice in the developing world,
“they were now laughed at.” Add the collapse of the World Trade
Organization talks in 2006 (prompting declarations that “globalization
is dead”), and it appears that the three main institutions responsible
for imposing the Chicago School ideology under the guise of economic
inevitability are at risk of extinction.

It stands to reason that the revolt against neoliberalism would be
in its most advanced stage in Latin America. As inhabitants of the
first shock lab, Latin Americans have had the most time to recover
their bearings, to understand how shock politics work. This
understanding is crucial for a new politics adapted to our shocking
times. Any strategy based on exploiting the window of opportunity
opened by a traumatic shock– the central tenet of the shock
doctrine–relies heavily on the element of surprise. A state of shock
is, by definition, a moment when there is a gap between fast-moving
events and the information that exists to explain them. Yet as soon as
we have a new narrative that offers a perspective on the shocking
events, we become reoriented and the world begins to make sense again.

Once the mechanics of the shock doctrine are deeply and collectively
understood, whole communities become harder to take by surprise, more
difficult to confuse–shock-resistant.

Naomi Klein is the author of many books, including her most recent, The Shock Doctrine: The Rise of Disaster Capitalism. Visit Naomi’s website at nologo.org.

Source: The Nation