Bigger than Ben Hur

Naomi Klein, The Shock Doctrine, Penguin 2007

This book is a real tour de force (466 pages of text) and at the same time highly problematical. I found myself deeply absorbed in the detail of Klein's narratives and having to pull myself back and say 'hey, wait a minute!' all the time. In one way it tells nothing new - the theme is that free markets are incompatible with democracy (one passing reference to Polanyi on p. 23) and that crises and disasters represent opportunities for capital and indeed are necessary to keep the system going (no references at all to Marx's economic theory, frequent use of the term "creative destruction" but not one reference to Schumpeter). In another way it leaves out some important parts of the story - the Asian crisis of the late '90s was apparently based on nothing more than a rumour. No, actually there was a material disaster - an unsustainable economy that was going to crash anyway. China is made to fit the story, though I don't really think it does. The lacunae or misinterpretations of some of the cases made me wonder how strong her case was for places I know little about (Bolivia and Argentina, for example). Mind you, this is likely to be a problem for any work as ambitious as this one is - going from the Pinochet coup in Chile to the Asian tsunami, Katrina and Iraq.

Bits I liked or just found interesting:

"Disaster capitalists share this same inability to distinguish between destruction and creation, between hurting and healing." (p. 47)

Friedman as the architect of 'shock therapy', his enthusiasm for Nixon's election (and disappointment with his domestic economic policy though - cf Krugman). "Democracy had been inhospitable to the Chicago Boys in Chile; dictatorship would prove an easier fit." (p. 63)

The Chicago Boys... believed in a form of capitalism that is purist by its very nature. Theirs is a system based entirely on a belief in 'balance' and 'order' and the need to be free of interferences and 'distortions' in order to succeed. Because of these traits, a regime committed to the faithful appplication of this ideal cannot accept the presence of competing or tempering worldviews. In order for the ideal to be achieved, it requires a monopoly on ideology; otherwise, according to the central theory, the economic signals become distorted and the entire system is thrown out of balance. (pp. 102-03)

Torture as 'curing' (pp. 111-14). Idea of society as having gangrene or cancer which must be excised.

The decoupling of 'human rights' from the systematic reasons for these abuses which was the need to 'cure' the cancer of democratic ideals in order to serve the interests of capital better.

Simone de Beauvoir quoted: "There are no 'abuses' or 'excesses' here, simply an all pervasive system." Klein says: "there is no humane way to rule people against their will" (p. 126)

Thatcher showed that it could be done in a 'democracy' by creating a crisis. Crisis as opportunity.
Friedman 1982: "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." Or Allan Meltzer: "Ideas are alternatives waiting on a crisis to serve as the catalyst of change. Friedman's model of influence was to legitimize ideas, to make them bearable, and worth trying when the opportunity comes." Klein adds: "Crises are, in a way, democracy-free zones - gaps in politics as usual when the need for consent and consensus do not seem to apply." (p. 140)

The hollowing out of the state through sub-contracting and privatization of the state itself. Klein argues that this was the real Rumsfeld-Cheney program from the start and they chose Iraq for their most thoroughgoing experiment because it was in an already-weakened condition through sanctions.

"Political cleansing" (p. 330) and "disaster apartheid" - the discarding of 25 to 60 per cent of the population, the creation of Green Zones all over the world - gated communities that leave the masses to survive as best they can in the Red Zones. The Israeli Apartheid Wall as just the latest and most sophisticated of these, creating a whole "gated country."

New reasons for the breakdown of Oslo. While most sources attribute the sheer viciousness of Israeli policy in recent years to a continuation of aggression that began in 1948 together with unremitting US support, Klein argues that the destruction of Oslo was made possible by the application of the 'shock doctine' to the FSU, leading to a mass emigration of Jews and, indeed, many with the most tenuous of claims to Jewishness trying to escape from the sudden, sharp increase in poverty. Former Soviet Jews now account for 14% of the Israeli population and many of them have not only fuelled the settlement movement in the West Bank, but also replaced Palestinian cheap labour within Israel - thus facilitating the "closure". The dramatic rise of "security exports" as the mainstay of the Israeli economy - they trebled between 1992 and 2006 (p. 436).

In general, the depressing idea that 'security' has replaced 'peace' as the desirable state of affairs.

The dramatic widening of inequality (together with increasing poverty) in Argentina, Israel and the US in the past 20 years (p. 444). Overseas parallels with Krugman's data on the US. Same in the new ex-Soviet kleptocracy of Boris Yeltsin (where some people went from zero to billionaire in the space of a decade and average life expectancy fell by 10 years). Speaking of which, she produces the stunning (to me) statistic that 46 per cent of the population of New Mexico is functionally illiterate.

The inevitable result of the Surge

Let's suppose that the original invasion of Iraq plus Israel's disastrous adventure in Lebanon last year have brought about a fundamental change in the balance of power in the Middle East. The losers in this shift are Israel and the Saud family. The gainers are Iran and Syria. From that standpoint Bush's escalation is very rational. The US cannot afford to pull out and leave the field to the 'axis of evil'. It has to attempt to defend the gains made - and putting it bluntly, they are gains because the objective was never democracy and blah blah in Iraq, the objective was always to gain a strategic foothold for Big Oil & associates as well as a possible new base in case the Saudi regime went belly up.

So the foothold of aspiration has become a toehold in reality. Escalation was thus inevitable, given that Bush's political constituency has always been so closely linked to BO & Associates and, since the warmongering began, Big Defence & Associates. In 2001 the US was in the middle of a serious recession. I seem to recall saying back when the wars began that this would be good for the economy and it has been. However, the crash is also inevitable sooner or later - the articles about excessive liquidity in the global financial system have already begun to appear. The following is from the WSJ a couple of weeks ago:

The world's financial system is overflowing with stocks, bonds and other financial assets -- $140 trillion worth, to be precise.

The figure was released in a study by McKinsey & Co. that maps financial assets around the globe and seeks to track the flows of these assets as they move from one region to another, putting hard numbers on the oceans of capital washing up around the globe.

At $140 trillion in 2005, the value of the world's financial assets hit a new peak and was more than three times as large as the total output of goods and services produced across the planet that year.

The study, released today, paints a picture of a world in which investors and the banks that manage their money are spreading their bets more broadly. Flows of investment across borders hit $6 trillion in 2005, McKinsey said, above levels reached at the height of the 1990s stock-market bubble and more than double the figure in 2002.

At the epicenter of these financial flows is the U.S., which takes in about 85% of the flows from countries that are net exporters of capital -- places like Japan, China and the Middle East. "It's a pretty striking thing," says Diana Farrell, director of the McKinsey Global Institute, an in-house think tank that produced the report. "Of all the savings that citizens world-wide are willing to put outside their countries, the U.S. gets 85% of it."

Global financial flows are likely to accelerate in the coming years. "The growth in trade in financial assets is proceeding about 50% faster than the growth in trade" in goods and services, says Kenneth Rogoff, an economist at Harvard....

Ninety percent of global capital flows run between three regions: the U.S., the United Kingdom and the European countries that use the euro, the report found. Capital flows in and out of Japan in recent years, according to McKinsey's data, were smaller than China's.

When the financial bubble bursts, Europeans and Americans will have squillions wiped off the value of their assets. China is in a much better position since it has no ideological problems with the Iranian regime and will be only too glad to step in when the US loses its toehold. But before that happens, the war seems very likely to spread - to Iran in the first instance. Do they seriously think they can win that one? Can your average American jackboot tell the difference between an Iraqi militiaman and an Iranian one (there are already, according to a professor at Tehran University, thousands of Iranians in Iraq lending a hand to the Shia side - or a civilian and a militiaman for that matter? Will they care? I don't think so as the stakes are too high to worry about a few mere humans.

The result is predictable. There will be a Shi'ite arc across the Middle East (let's face it, there already is since the election in Iraq.) Not so predictable: a new regime in Arabia? Israel pushed into the sea? Depends how far the escalation goes.

Who should be in the G8?

The discussion has come up again due to some people wanting to exclude Russia over the Ukrainian gas business, gaoling of Khordukovsky, press suppression, etc. The advocates of this point of view argue that the G8 members are the largest economies that are also liberal democracies. The Russian counter-argument is that it is a grouping of the world's most influential economies. Both are right in a way, but in order to preserve the safety of all of us, I'd rather lean towards the Russian view.

The G8 was once the G7, originally set up to manage the consequences of the 1970s oil shocks in the capitalist part of the world economy. Since neither Russia nor China were then capitalist economies they could, by definition, not participate. The extent to which the group operated as an instrument of US economic power is illustrated by the fact that Bill Clinton could, virtually unilaterally, invite Russia to join during the latter's early post-Communist phase. In this earlier format, while the G7 was always about attempting to generate economic co-ordination, it was at the same time an exclusive club of basically like-minded politicians - a method by which they could negotiate with each other over the solutions to their inevitable economic tensions. Thus the 'largest industrial democracies' argument is right up to a point.

However, the situation has changed somewhat since the early 1990s. China has emerged as an economic superpower and, if its current growth rates continue, is likely to overtake France, the UK and even Germany within the space of a decade or two. Moreover, it is by now the world's 4th largest trading power. These facts would suggest that, from an economic co-ordination point of view, China should be included in the G8 (or whatever number is chosen). But then China is scarcely a lickspittle of the US - the like-mindedness of the old G7 would be out the window. Life would get more uncomfortable, as it already is with Russia about to take up the presidency of the group. Arguably a new kind of Cold War is already beginning - between the dominant western economies (the 'old' imperial economies) and the newcomers like China.

Russia is in the group, probably because the Clinton administration assumed that shifting from an authoritarian, centrally planned economy to a market democracy would be a simple thing and therefore underestimated the extent of the Russian economy's post-Soviet collapse. While Russia has begun to recover and Putin is obviously anxious to flex economic muscle - the only muscle they have left to flex is the natural resources one - it hardly qualifies as one of the world's largest industrialized economies, let alone democracies. I searched 16 countries in the World Bank's database and Russia came in last on the size of its Gross National Income (same on GDP). Other non-G8 countries ahead of it in economic size are Spain, India, Korea, Australia and the Netherlands. Anyway, it's economy is only half the size of Canada's (the next smallest in the G8). Moreover, while it exported 35% of its GDP in 2002, it ranked 11th in terms of the total volume and the share of exports in its GDP has declined since then. Russia does, perhaps, have a disproportionate influence on European energy supplies - which means the Europeans will be keen to keep them in, at least while the current energy scares continue. But as in 1914, it seems the weakest of the current group by a long way.

Canada has recently been overtaken by Spain on GDP, but not yet on GNI. The reason is that GNI includes external resources (e.g. foreign capital inflows and outflows) which increase the size of the US and Chinese economies relative to GDP, but reduce those of all the others. GNI is a better measure to use for G8 purposes because it reflects the external clout of the economy, rather than just its domestic production. Spain is, as yet, a slightly less influential international economic player than Canada. In 2002, for example, exports of goods and services amounted to 28% of GDP compared with 42% for Canada. Then, if you look at the growth rates of these economies, there is much more growth in the bottom half of the list than in the top half (excepting China). Canada might be overtaken, not just by Spain, but by Mexico, India and Korea in the next decade (assuming continuation of current growth - which is always problematical).

My prediction is that the G8 will expand its numbers in the coming years. China may push to get in, but then it may also decide that the East Asian Summit is a better way to promote its global influence against the 'old' imperial powers. That would not, on the whole be a helpful development, especially if the like-minded ones (the US' political allies) decided to start up smaller, more exclusive, club too. Imperial blocs are generally not conducive to world peace.

Gross National Income (Atlas method) 2004 (trillion USD)*

1. United States 12150.93
2. Japan 4749.91
3. Germany 2488.97
4. United Kingdom 2016.39
5. France 1858.73
6. China 1676.85
7. Italy 1503.56
8. Canada 905.63
9. Spain 875.82
10. Mexico 703.1
11. India 674.58
12. Korea, Rep. 673.04
13. Brazil 552.1
14. Australia 541.1
15. Netherlands 515.1
16. Russian Federation 487.34
* The Atlas method gets rid of changes that are just due to exchange rate fluctuations.

Exports of goods and services, 2002 (trillion USD)
1. United States 1042.9
2. Germany 715.0
3. Japan 436.9
4. United Kingdom 406.4
5. France 388.0
6. China 368.6
7. Italy 320.2
8. Canada 304.5
9. Korea 191.5
10. Spain 183.4
11. Russia 120.8