Part 8 (1/2)

The Korean t.i.tan Samsung, for instance, was broken up and sold for parts: Volvo got its heavy industry division, SC Johnson Son its pharmaceutical arm, General Electric its lighting division. A few years later, Daewoo's once-mighty car division, which the company had valued at $6 billion, was sold off to GM for just $400 million-a steal worthy of Russia's shock therapy. But this time, unlike what happened in Russia, local firms were getting wiped out by the multinationals.43 Other big players who got a piece of the Asian distress sale included Seagram's, Hewlett-Packard, Nestle, Interbrew and Novartis, Carrefour, Tesco and Ericsson. Coca-Cola bought a Korean bottling company for half a billion dollars; Procter and Gamble bought a Korean packaging company; Nissan bought one of Indonesia's largest car companies. General Electric acquired a controlling stake in Korea's refrigerator manufacturer LG; and Britain's Power-gen nabbed LG Energy, a large Korean electricity-and-gas company. According to BusinessWeek, BusinessWeek, the Saudi prince Alwaleed bin Talal was ”jetting across Asia in his cream-colored Boeing 727, collecting bargains”-including a stake in Daewoo. the Saudi prince Alwaleed bin Talal was ”jetting across Asia in his cream-colored Boeing 727, collecting bargains”-including a stake in Daewoo.44 Fittingly, Morgan Stanley, which had been the loudest in calling for a deepening of the crisis, inserted itself into many of these deals, collecting huge commissions. It acted as Daewoo's adviser on the sale of its automotive division and on brokering the privatization of several South Korean banks.45 It wasn't only private Asian firms that were being sold to foreigners. Like earlier crises in Latin America and Eastern Europe, this one also forced governments to sell public services to raise badly needed capital. The U.S. government eagerly antic.i.p.ated this effect early on. In arguing why Congress should authorize billions to the IMF for the Asia makeover, the U.S. trade representative Charlene Barshefsky offered a.s.surances that the agreements would ”create new business opportunities for US firms”: Asia would be forced to ”accelerate privatization of certain key sectors-including energy, transportation, utilities and communications.” It wasn't only private Asian firms that were being sold to foreigners. Like earlier crises in Latin America and Eastern Europe, this one also forced governments to sell public services to raise badly needed capital. The U.S. government eagerly antic.i.p.ated this effect early on. In arguing why Congress should authorize billions to the IMF for the Asia makeover, the U.S. trade representative Charlene Barshefsky offered a.s.surances that the agreements would ”create new business opportunities for US firms”: Asia would be forced to ”accelerate privatization of certain key sectors-including energy, transportation, utilities and communications.”46 Sure enough, the crisis set off a wave of privatizations, and foreign multinationals cleaned up. Bechtel got the contract to privatize the water and sewage systems in eastern Manila, as well as one to build an oil refinery in Sulawesi, Indonesia. Motorola got full control over Korea's Appeal Telecom. The New York-based energy giant Sithe got a large stake in Thailand's public gas company, the Cogeneration. Indonesia's water systems were split between Britain's Thames Water and France's Lyonnaise des Eaux. Canada's Westcoast Energy snapped up a huge Indonesian power plant project. British Telecom purchased a large stake in both Malaysia's and Korea's postal services. Bell Canada got a piece of Korea's telecom Hansol 47 47 All told, there were 186 major mergers and acquisitions of firms in Indonesia, Thailand, South Korea, Malaysia and the Philippines by foreign multinationals in a span of only twenty months. Watching this sale unfold, Robert Wade, an LSE economist, and Frank Veneroso, an economic consultant, predicted that the IMF program ”may even precipitate the biggest peacetime transfer of a.s.sets from domestic to foreign owners in the past fifty years anywhere in the world.”48 The IMF, while admitting some errors in its early responses to the crisis, claims that it quickly corrected them and that the ”stabilization” programs were successful. It's true that Asia's markets eventually calmed down, but at a tremendous and ongoing cost. Milton Friedman, at the height of the crisis, had cautioned against panic, insisting that ”it will be over. ... As they get this financial mess settled, you can see a return to growth in Asia, but whether it will be one year, two years, three years, n.o.body can tell you.”49 The truth is that Asia's crisis is still not over, a decade later. When 24 million people lose their jobs in a span of two years, a new desperation takes root that no culture can easily absorb. It expresses itself in different forms across the region, from a significant rise in religious extremism in Indonesia and Thailand to the explosive growth in the child s.e.x trade.

Employment rates have still not reached pre-1997 levels in Indonesia, Malaysia and South Korea. And it's not just that workers who lost their jobs during the crisis never got them back. The layoffs have continued, with new foreign owners demanding ever-higher profits for their investments. The suicides have also continued: in South Korea, suicide is now the fourth most common cause of death, more than double the pre-crisis rate, with thirty-eight people taking their own lives every day.50 That is the untold story of the policies that the IMF calls ”stabilization programs,” as if countries were s.h.i.+ps being tossed around on the market's high seas. They do, eventually, stabilize, but that new equilibrium is achieved by throwing millions of people overboard: public sector workers, small-business owners, subsistence farmers, trade unionists. The ugly secret of ”stabilization” is that the vast majority never climb back aboard. They end up in slums, now home to 1 billion people; they end up in brothels or in cargo s.h.i.+p containers. They are the disinherited, those described by the German poet Rainer Maria Rilke as ”ones to whom neither the past nor the future belongs.”51 These people weren't the only victims of the IMF's demand for perfect orthodoxy in Asia. In Indonesia, the anti-Chinese sentiment I witnessed in the summer of 1997 continued to build, stoked by a political cla.s.s happy to deflect attention away from itself. It got much worse after Suharto raised the price of basic survival items. Riots broke out across the country, and many of them targeted the Chinese minority; approximately twelve hundred people were killed, and dozens of Chinese women were gang-raped.52They too should be counted among the victims of Chicago School ideology.

Anger in Indonesia did, finally, direct itself at Suharto and the presidential palace. For three decades, Indonesians had been kept more or less in line by the memory of the bloodbath that brought Suharto to power, a memory that was refreshed by periodic ma.s.sacres in the provinces and in East Timor. Anti-Suharto rage had burned under the surface all this time, but it took the IMF to pour the gasoline-which it did, ironically, by demanding that he raise the price of gasoline. After that, Indonesians rose up and pushed Suharto from power.

Like a prison interrogator, the IMF used the extreme pain of the crisis to break the Asian Tigers' will, to reduce the countries to total compliance. But the CIA's interrogation manuals warn that this process can go too far-apply too much direct pain and, instead of regression and compliance, the interrogators face confidence and defiance. In Indonesia that line was crossed, a reminder that it is possible to take shock therapy too far, provoking a kind of blowback that was about to become very familiar, from Bolivia to Iraq.

Free-market crusaders are, however, slow learners when it comes to the unintended consequences of their policies. The only lesson learned from the enormously lucrative Asian sell-off appears to have been yet more confirmation for the shock doctrine, more evidence (as if any more was needed) that there is nothing like a true disaster, a genuine churning of society, to open up a new frontier. A few years after the peak of the crisis, several prominent commentators were even willing to go so far as to say that what happened in Asia, despite all the devastation, was a blessing in disguise. The Economist The Economist noted that ”it took a national crisis for South Korea to turn from an inward-looking nation to one that embraced foreign capital, change and compet.i.tion.” And Thomas Friedman, in his best-selling book noted that ”it took a national crisis for South Korea to turn from an inward-looking nation to one that embraced foreign capital, change and compet.i.tion.” And Thomas Friedman, in his best-selling book The Lexus and the Olive Tree The Lexus and the Olive Tree, declared that what happened in Asia wasn't a crisis at all. ”I believe globalization did us all a favor by melting down the economies of Thailand, Korea, Malaysia, Indonesia, Mexico, Russia, and Brazil in the 1990s, because it laid bare a lot of rotten practices and inst.i.tutions,” he wrote, adding that ”exposing the crony capitalism in Korea was no crisis in my book.”53 In his In his New York Times New York Times columns supporting the invasion of Iraq, a similar logic would be on display, except that the melting down would be done with cruise missiles, not currency trades. columns supporting the invasion of Iraq, a similar logic would be on display, except that the melting down would be done with cruise missiles, not currency trades.

The Asian crisis certainly showed how well disaster exploitation worked. At the same time, the destructiveness of the market crash and the cynicism of the West's response sparked powerful countermovements.

The forces of multinational capital got their way in Asia, but they provoked new levels of public rage, with the rage eventually directed squarely at the inst.i.tutions advancing the ideology of unfettered capitalism. As an unusually balanced Financial Times Financial Times editorial put it, Asia was a ”warning signal that public unease with capitalism and the forces of globalization is reaching a worrying level. The Asian crisis showed the world how even the most successful countries could be brought to their knees by a sudden outflow of capital. People were outraged at how the whims of secretive hedge funds could apparently cause ma.s.s poverty on the other side of the world.” editorial put it, Asia was a ”warning signal that public unease with capitalism and the forces of globalization is reaching a worrying level. The Asian crisis showed the world how even the most successful countries could be brought to their knees by a sudden outflow of capital. People were outraged at how the whims of secretive hedge funds could apparently cause ma.s.s poverty on the other side of the world.”54 Unlike in the former Soviet Union, where the planned misery of shock therapy could be pa.s.sed off as part of the ”painful transition” from Communism to market democracy, Asia's crisis was plainly a creation of the global markets. Yet when the high priests of globalization sent missions to the disaster zone, all they wanted to do was deepen the pain.

The result was that these missions lost the comfortable anonymity they had enjoyed previously. The IMF's Stanley Fischer recalled the ”circus atmosphere” around the Seoul Hilton when he visited South Korea at the start of the negotiations. ”I got imprisoned in my hotel room -couldn't move out because [if] I opened the door, there were 10,000 photographers.” According to another account, in order to reach the banquet room where the negotiations were taking place, IMF representatives were forced ”to take a circuitous route to a back entrance that involved going up and down flights of stairs and through the Hilton's vast kitchen.”55 At the time, IMF officials were unaccustomed to such attention. The experience of being prisoners in five-star hotels and conference centers would become familiar for emissaries of the Was.h.i.+ngton Consensus in the years to come, as ma.s.s protests started to greet their gatherings around the world. At the time, IMF officials were unaccustomed to such attention. The experience of being prisoners in five-star hotels and conference centers would become familiar for emissaries of the Was.h.i.+ngton Consensus in the years to come, as ma.s.s protests started to greet their gatherings around the world.

After 1998, it became increasingly difficult to impose the shock therapy-style makeovers by peaceful means-through the usual IMF bullying or arm-twisting at trade summits. The defiant new mood coming from the South made its global debut when the World Trade Organization talks collapsed in Seattle in 1999. Though the college-age protesters received the bulk of the media coverage, the real rebellion took place inside the conference center, when developing countries formed a voting bloc and rejected demands for deeper trade concessions as long as Europe and the U.S. continued to subsidize and protect their domestic industries.

At the time, it was still possible to dismiss the Seattle breakdown as a minor pause in the steady advance of corporatism. Within a few years, however, the depth of the s.h.i.+ft would be undeniable: the U.S. government's ambitious dream of creating a unified free-trade zone encompa.s.sing all of Asia-Pacific was abandoned, as were a global investors' treaty and plans for a Free Trade Area of the Americas, stretching from Alaska to Chile.

Perhaps the greatest impact of the so-called antiglobalization movement was that it forced the Chicago School ideology into the dead center of the international debate. For a brief moment at the turn of the millennium, there was no pressing crisis to deflect attention -the debt shocks had faded, the ”transitions” were complete, and a new global war had not yet arrived. What was left was the real world track record of the free-market crusade: the dismal reality of inequality, corruption and environmental degradation left behind when government after government embraced Friedman's advice, given to Pinochet all those years ago, that it was a mistake to try ”to do good with other people's money.”

In retrospect, it is striking that capitalism's monopoly period, when it no longer had to deal with competing ideas or counterpowers, was extremely brief-only eight years, from the collapse of the Soviet Union in 1991 to the collapse of the WTO talks in 1999. But rising opposition would not slow the determination to advance this extraordinarily profitable agenda; its advocates would simply ride the waves of fear and disorientation created by bigger shocks than ever before.

PART 5.

SHOCKING TIMES.

THE RISE OF THE DISASTER CAPITALISM COMPLEX.

Creative destruction is our middle name, both within our own society and abroad. We tear down the old order every day, from business to science, literature, art, architecture, and cinema to politics and the law____

They must attack us in order to survive, just as we must destroy them to advance our historic mission.

-Michael Ledeen,The War against the Terror Masters, 2002 2002.

George's answer to any problem at the ranch is to cut it down with a chain saw-which I think is why he and Cheney and Rumsfeld get along so well.

-Laura Bush, White House Correspondents' a.s.sociation Dinner, April 30, 2005

CHAPTER 14.

SHOCK THERAPY IN THE U.S.A.

THE HOMELAND SECURITY BUBBLE.

He's a ruthless little b.a.s.t.a.r.d. You can be sure of that.

-Richard Nixon, U.S. president, referring to Donald Rumsfeld, 19711.

Today I fear that we are in fact waking up to a surveillance society that is already all around us.

-Richard Thomas, U.K. information commissioner, November 20062.

Homeland security may have just reached the stage that Internet investing hit in 1997. Back then, all you needed to do was put an ”e” in front of your company name and your IPO would rocket. Now you can do the same with ”fortress.”

-Daniel Gross, Slate, Slate, June 2005 June 20053.

It was a muggy Monday in Was.h.i.+ngton, and Donald Rumsfeld was about to do something he hated: talk to his staff. Since taking office as defense secretary, he had solidified his reputation among the Joint Chiefs of Staff as high-handed, secretive and-a word that kept coming up-arrogant. Their animosity was understandable. Since setting foot in the Pentagon, Rumsfeld had brushed aside the prescribed role of leader and motivator and acted instead like a bloodless hatchet man-a CEO secretary on a downsizing mission.

When Rumsfeld accepted the post, many wondered why he would even want it. He was sixty-eight years old, had five grandchildren and a personal fortune estimated at as much as $250 million-and he had already held the same post in the Gerald Ford administration.4 Rumsfeld, however, had no desire to be a traditional defense secretary, defined by the wars waged on his watch; he had greater ambitions than that. Rumsfeld, however, had no desire to be a traditional defense secretary, defined by the wars waged on his watch; he had greater ambitions than that.

The incoming defense secretary had spent the past twenty-odd years heading up multinational corporations and sitting on their boards, often leading companies through dramatic mergers and acquisitions, as well as painful restructurings. In the nineties, he had come to see himself as a man of the New Economy, directing a company specializing in digital TV, sitting on the board of another promising ”e-business solutions,” and serving as board chairman of the very sci-fi biotech firm that held the exclusive patent on a treatment for avian flu as well as on several important AIDS medications.5 When Rumsfeld joined the cabinet of George W. Bush in 2001, it was with a personal mission to reinvent warfare for the twenty-first century- turning it into something more psychological than physical, more spectacle than struggle, and far more profitable than it had ever been before. When Rumsfeld joined the cabinet of George W. Bush in 2001, it was with a personal mission to reinvent warfare for the twenty-first century- turning it into something more psychological than physical, more spectacle than struggle, and far more profitable than it had ever been before.

Much has been written about Rumsfeld's controversial ”transformation” project, which prompted eight retired generals to call for his resignation and eventually forced him to step down after the 2006 midterm elections. When Bush announced the resignation he described the ”sweeping transformation” project-and not the war in Iraq or the broader ”War on Terror”-as Rumsfeld's most profound contribution: ”Don's work in these areas did not often make the headlines. But the reforms that set in motion-that he has set in motion-are historic.”6 They are indeed, but it has not always been clear what those reforms consist of. They are indeed, but it has not always been clear what those reforms consist of.

Senior military officials derided ”transformation” as ”empty buzz words,” and Rumsfeld often seemed determined (almost comically) to prove the critics right: ”The Army is going through what is a major modernization,” Rumsfeld said in April 2006. ”It's moving from a division-oriented force to a modular brigade combat team force . . . from service-centric war-fighting to deconfliction war-fighting to interoperability and now toward interdependence. That's a hard thing to do.”7 But the project was never quite as complicated as Rumsfeld made it sound. Beneath the jargon, it was simply an attempt to bring the revolution in outsourcing and branding that he had been part of in the corporate world into the heart of the U.S. military. But the project was never quite as complicated as Rumsfeld made it sound. Beneath the jargon, it was simply an attempt to bring the revolution in outsourcing and branding that he had been part of in the corporate world into the heart of the U.S. military.

During the 1990s, many companies that had traditionally manufactured their own products and maintained large, stable workforces embraced what became known as the Nike model: don't own any factories, produce your products through an intricate web of contractors and subcontractors, and pour your resources into design and marketing. Other companies opted for the alternative, Microsoft model: maintain a tight control center of shareholder/employees who perform the company's ”core competency” and outsource everything else to temps, from running the mailroom to writing code. Some called the companies that underwent these radical restructurings ”hollow corporations” because they were mostly form, with little tangible content left over.

Rumsfeld was convinced that the U.S. Department of Defense needed an equivalent makeover; as Fortune Fortune said when he arrived at the Pentagon, ”Mr. CEO” was ”about to oversee the same sort of restructuring that he orchestrated so well in the corporate world.” said when he arrived at the Pentagon, ”Mr. CEO” was ”about to oversee the same sort of restructuring that he orchestrated so well in the corporate world.”8 There were, of course, some necessary differences. Where corporations unburdened themselves of geography-bound factories and full-time workers, Rumsfeld saw the army shedding large numbers of full-time troops in favor of a small core of staffers propped up by cheaper temporary soldiers from the Reserve and National Guard. Meanwhile, contractors from companies such as Blackwater and Halliburton would perform duties ranging from high-risk chauffeuring to prisoner interrogation to catering to health care. And where corporations poured their savings on labor into design and marketing, Rumsfeld would spend his savings from fewer troops and tanks on the latest satellite and nano-technology from the private sector. ”In the twenty-first century,” Rumsfeld said of the modern military, ”we're going to have to stop thinking about things, numbers of things, and ma.s.s, and think also and maybe even first about speed and agility and precision.” He sounded very much like the hyperactive management consultant Tom Peters, who declared in the late nineties that companies had to decide if they were ”pure 'players' in brain-ware” or ”lumpy-object purveyors.” There were, of course, some necessary differences. Where corporations unburdened themselves of geography-bound factories and full-time workers, Rumsfeld saw the army shedding large numbers of full-time troops in favor of a small core of staffers propped up by cheaper temporary soldiers from the Reserve and National Guard. Meanwhile, contractors from companies such as Blackwater and Halliburton would perform duties ranging from high-risk chauffeuring to prisoner interrogation to catering to health care. And where corporations poured their savings on labor into design and marketing, Rumsfeld would spend his savings from fewer troops and tanks on the latest satellite and nano-technology from the private sector. ”In the twenty-first century,” Rumsfeld said of the modern military, ”we're going to have to stop thinking about things, numbers of things, and ma.s.s, and think also and maybe even first about speed and agility and precision.” He sounded very much like the hyperactive management consultant Tom Peters, who declared in the late nineties that companies had to decide if they were ”pure 'players' in brain-ware” or ”lumpy-object purveyors.”9 Not surprisingly, the generals who were used to holding sway in the Pentagon were pretty sure that ”things” and ”ma.s.s” still mattered when it came to fighting wars. They soon became deeply hostile to Rumsfeld's vision of a hollow military. After a little more than seven months in office, the secretary had already stepped on so many powerful toes that it was rumored his days were numbered.