Nov 11, 2012
This episode is a history of free market policies implemented around the world for the last fifty years.
The Basics Corporatist system: Its main characteristics are huge transfers of public wealth to private hands, often accompanied by exploding debt, an ever-widening chasm between the dazzling rich and the disposable poor and an aggressive nationalism that justifies bottomless spending on security. Chicago School Theory -advanced by Milton Friedman: The starting premise is that the free market is a perfect scientific system, on in which individuals, acting on their own self-interested desires, create the maximum benefits for all. It follows ineluctably that if something is wrong within a free-market economy- high inflation or soaring unemployment- it has to because the market is not truly free. There must be some interference, some distortion in the system. The Chicago solution is always the same: a stricter and more complete application of the fundamentals. The economic agenda of the neoconservative movement:
Specifics to watch for:
Historical Evidence Free Market in Chile Chile before Chicago School infiltration:
Chicago School infiltration: 1953: The Ford Foundation fundeda plan to send Chilean students to study economics at the University of Chicago on Chicago School fundamentals. Students returned to the Catholic University in Chile to teach in their Economics Department These students-turned-professors were called the "Chicago Boys". 1970 Elections: All parties wanted to nationalize the copper mines then controlled by U.S. mining corporations (the U.S. corporations had invested $1 billion over fifty years in the Chilean mining industry but had collected $7.2 billion in profit). Salvador Allende won the election. A group of U.S. mining companies and the Internatioal Telephone and Telegraph Company (ITT) (which owned 70% of Chile’s soon-to-be nationalized phone company) tried to collapse Chile’s economy. ITT prepared an eighteen point strategy for the Nixon administration that contained a clear call for a military coup. Meanwhile, a the Chicago boys and the CIA created “The Brick”, an economic program based on Milton Friedman’s free market ideas. Allende’s government was overthrown in a CIA backed coup who then installed Augusto Pinochet; Pinochet followed the Chicago Boy’s economic plan. Augusto Pinochet:
A small clique of financiers known as the “piranhas” made a killing on speculation. People were pissed. Pinochet took to murder and torture to keep the population under control. Friedman told Pinochet it was not enough. He told him to cut government spending by 25 percent within six months across the board while adopting pro-business policies moving toward “complete free trade”. He knew that hundreds of thousands of people would be fired in the public sector. 1975: Pinochet cut public spending by 27 percent; by 1980, they had cut it in half. The results:
1982: Chile's economy crashed. Debt exploded, unemployment hit 30 percent. 1988: 45 percent of the population had fallen below the poverty line. The richest 10 percent of Chileans, however, had seen their incomes increase by 83 percent. After 17 years, before Pinochet’s reign ended, the Chicago Boys Boys rigged the constitution and the courts so it was legally impossible to reverse their laws. Free Market in Indonesia 1965: Sukarno, the President of Indonesia, threw out the International Monetary Fund and the World Bank, which he accused of being facades for the interests of Western multinationals October 1965; General Suharto, backed by CIA, began the process of seizing power and destroying the left. CIA made a list of targets, the Pentagon hooked up Suharto’s guys with weapons and field radios, and names were crossed off until the left was physically gone. The Berkeley Mafia, a group of Indonisean economists educated at the University of California at Berkeley, had studied in the U.S. as part of a program that began in 1956 funded by the Ford Foundation. Suharto didn’t know anything about finance, so the Berkeley Mafia drafted his economic policy. The free market policies:
Suharto ruled for thirty years. During that time:
Employment rates have still not reached pre-1997 levels in Indonesia. 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. Free Market in Argentina The Chicago Boys trained Argentinians in the magic of the free market. 1976: The Argentinian military junta staged a coup, supported fully by U.S. President Gerald Ford, chief-of-staff Dick Cheney, and Defense Secretary Donald Rumsfeld. The top economic job went to Martinez de Hoz, a member of the cattle aristocracy and a board member of several multinational corporations, including ITT, who wanted to go back to the feudal economy of cheap labor. His new policies included laws which:
Results for the people:
1982: Just before Argentina’s dictatorship collapsed, they announced that the state would pay the debts of large multinational and domestic companies. These companies continued to own their assets and profits, but the public had to pay off between $15 and $20 billion of their debts. The companies included Ford Motor Argentina, Chase Manhattan, Citibank, IBM, and Mercedes-Benz. 1992: Free market happens again. Carlos Menem ran on nationalist policies but put the guy who gave the corporate bailouts in charge of the economy. The new government quickly made cuts to public spending and launched another new currency, the Argentine peso, pegged to the U.S. dollar. Within a year, inflation was down to 17.5 percent and was virtually eliminated a few years later. 1994: The new government sold 90 percent of all state enterprises to private companies. Before making the sales, they had fired roughly 700,000 of the state workers. Argentina’s entire early-nineties economic program was written in secret by JP Morgan and Citibank, two of Argentina’s largest private creditors. Local factories could not compete with the cheap imports flooding the country. Half the country would eventually be pushed below the poverty line. Carlos Menem downsized and sold the oil fields, the phone system, the airline, the trains, the airport, the highways, the water system, the banks, the Buenos Aires zoo and eventually, the post office and the national pension plan. As the country’s wealth moved offshore, the lifestyles of Argentina’s politicians grew increasingly lavish. December 19, 2001: President Fernando de la Rua and his finance minister, Domingo Cavallo, tried to impose further IMF-prescribed austerity measures. The population revolted. De la Rua was forced to flee in a helicopter, but not before 21 protesters were killed by police Free Market in Uruguay 1973: Military coup. 1974: Professors from the University of Chicago reformed their tax system and commercial policy. Real wages dropped by 28 percent. Scavengers appeared on the streets of Montevideo for the first time. Free Market in China 1980: Deng government invited Milton Friedman to come to China and teach top-level civil servants, professors and party economists in the fundamentals of free-market theory. The party wanted to open the market the while maintaining its own grip on power; their plan ensured that once the assets of the state were auctioned off, party officials and their relatives would snap up the best deals and be first in line for the biggest profits. The model Chinese government intended to emulate Chile under Pinochet: free markets combined with authoritarian political control, enforced by iron-fisted repression. “Reform” = code for party officials turning into business tycoons, as many illegally took possession of the assets they had previously managed as bureaucrats. The state would protect its economic “reform” program by crushing demonstrators. May 20, 1989: The government of the People’s Republic of China declared martial law. June 3, 1989: The tanks of the people’s Liberation Army rolled into the protests, shooting indiscriminately into the crowds. The government reserved its harshest repression for the factory workers, who represented the most direct threat to deregulated capitalism. In the three years following the blood bath, China was cracked open to foreign investment. Turned China into the sweatshop of the world because they implemented low taxes and tariffs, had corruptible officials and, most of all, had a plentiful low-wage workforce that, for many years, would be too afraid to protest. Free Market in Bolivia During the Reagan years, Chicago School precepts about the supremacy of the free market had rapidly become the unquestioned orthodoxy in Ivy League economics departments. A backroom negotiation took place on August 6, 1985 during which Paz –the new president who had run as a nationalist- appointed a man known as Goni to head up a top-secret economic team charged with restructuring the economy. Paz’s party had no idea he had struck this backroom deal. Goni owned Comsur, the second-largest private mine in the country, soon to be the largest; as a young man, Goni had studied at the University of Chicago. Seventeen days later, they had created a textbook free market economic program. It included:
Paz’s team insisted on bundling the entire revolution into a single executive decree; according to its authors, the entire program had to accepted or rejected; it couldn’t be amended. Within two years:
"A small elite grew far wealthier while large portions of what had been the working class were discarded from the economy altogether and turned into surplus people." Bolivia had brought in a Pinochet-style economic program, without a Pinochet, and under a center-left government. It was labeled “Voodoo politics”, but most people simply call it lying, and it was proven effective in implementing free market policies. The Crackdown: The country’s main labor federation, called a general strike that brought industry to a halt. Paz declared a “state of siege”:
Oppositional politics was effectively banned- just as it had been under the dictatorship. Paz directed the police and military to round up the country’s top two hundred union leaders, load them on planes and fly them to remote jails in the Amazon. Ransom demand: The prisoners would be released only if the unions called off their protests, which they eventually agreed to do. One year later, it all happened again. Goni, then as president of Bolivia in the mid-nineties, sold off their national oil company, the national airline, railway, electricity and phone companies. The winners of Bolivia’s fire sale included Enron, Royal Dutch/Shell, Amoco Corp. and Citicorp. Goni’s privatizations sparked a series of “wars” in Bolivia:
In the end, Goni was forced to flee the presidential palace to live in the United States. Free Market in Poland 1988: The Communist government fell and Solidarity, the labor union party, won the election. Poland needed debt relief and some aid to get out of its financial crisis. The International Monetary Fund money was strictly conditional on Solidarity’s submitting to free market economics. Poland enlisted Jeffrey Sachs, a Harvard economist trained in free market economics. September 12, 1989, the Polish prime minister announced:
The Result:
Free Market in Russia In Russia: Communism was over and Russia had enormous wealth including huge oil fields, 30 percent of the world’s natural gas reserves, 20 percent of its nickel, weapons factories and a state media apparatus. 1991: G7 meeting told Mikhail Gorbachev must enact free market economic policies or he would be allowed to fail. He knew the policies would have to be enacted by force. Boris Yeltsin held the post of Russian president, and had a much lower profile than Gorbachev who headed all the Soviet Union. August 19, 1991: One month after the G7 summit, a group from the Communist old guard drove tanks up to the Russian parliament building and threatened to attack the country’s first elected parliament.Yeltsin stood on one of the tanks and denounced the aggression as “a cynical, right-wing coup attempt.” The tanks retreated and Boris Yeltsin emerged as democracy’s hero. December 1991: Four months after the aborted coup, Yeltsin formed an alliance with two other Soviet republics, a move that abruptly dissolved the Soviet Union, thereby forcing Grobachev’s resignation. Yeltsin enlisted Jeffrey Sachs, the same Harvard economist who had just “reformed” Bolivia and Poland. Sachs told Yeltsin he could raise something in the area of $15 billion. Late 1991: Yeltsin told parliament that if they gave him one year of special powers, under which he could issue laws by decree rather than bring them parliament for a vote, he would solve the economic crisis and give them back a thriving, healthy system. He was democracy’s hero. The answer was yes. He immediately assembled a team of economists, devoted fans of Milton Friedman that the Russian press took to calling “the Chicago Boys”. In just a month and a half, they wrote a comprehensive privatization plan. October 28, 1991, Yeltsin announced the plan:
The Results:
March 1993: The parliamentarians told Yeltsin he was done. They took back his dictatorial powers. Yeltsin went on television and declared a state of emergency, which restored his powers. Russia’s independent Constitutional Court ruled 9-3 that Yeltsin’s power grab violated the constitution on eight counts. The West supported Yeltsin. Then President Bill Clinton said he was “genuinely committed to freedom and democracy, genuinely committed to reform,” Yeltsin issued a decree announcing that the constitution was abolished and parliament dissolved. Two days later, a special session of parliament voted 636-2 to impeach Yeltsin for this outrageous act. President Clinton continued to back Yeltsin and Congress voted to give him $2.5 billion in aid. Yeltsin abandoned negotiations and moved into war posture. Having just doubled military salaries, he had most of the army on his side. Yeltsin’s next move was to dissolve all city and regional councils in the country. October 4, 1993: Yeltsin ordered a reluctant army to storm the Russian White House and set it on fire. The day after Yeltsin dissolved parliament, his team started writing economic decrees. Yeltsin and his team did not allow foreign multinationals to buy up Russia’s assets directly; they kept the prizes for Russians. Then they opened up the newly privatized companies, owned by so-called oligarchs, to foreign shareholders. . “The oligarchs” moved enormous profits offshore at a rate of $2 billion a month Yetlsin won the next election thanks to $100 million in financing from the Russian oligarchs (33 times the legal amount). They then started selling off the commons:
The companies were essentially stolen, as the purchasers used public money to buy the companies. Yeltsin’s ministers transferred large sums of public money, which should have gone into the national bank or treasury, into private banks that had been hastily incorporated by oligarchs. The state then contracted with the same banks to run the privatization auctions for the oil fields and mines. The banks bid in the auctions that they were running and made themselves the owners of the previously public assets. 1998: Russia's economy crashed. December 31, 1999: Several oligarchs engineered a quiet handover of power from Yeltsin to Vladimir Putin, no elections necessary. Putin’s first act as president was signing a law protecting Yeltsin from any criminal prosecution. By 1998:
Before the free market policies, Russia had no millionaires; by 2003, the number of Russian billionaires had risen to seventeen. Free Market in South Korea South Korea had laws that protected national firms from foreign ownership, had resisted pressure to privatize their key state companies, and were keeping sectors like energy and transportation in public hands. They had also blocked many foreign imports from Japan, Europe and North America as they built up their own domestic markets. 1997: South Korea lifted barriers to their financial sectors, allowing a surge of paper investing and currency trading. The speed and volatility of globalized markets killed South Korea. A rumor that Thailand did not have enough dollars to back up its currency triggered a stampede by investors. Banks called in their loans and the real estate market, which had been growing so quickly that it had become a bubble, popped. Western and Japanese investment banks and multinational firms wanted the right to buy up Korea’s impressive conglomerates like Daewoo, Hyundai, Samsung and LG. Financial establishment stepped forwards with a unified message: Don’t help Asia. The IMF refused to do anything for months. When a loan offer was finally made to South Korea, it came conditional with the implementation of free market reforms. The plan included:
When the plan was revealed, the market panicked. Traders thought the “reforms” meant Asia was worse than feared. They yanked out more money and further attacked the currency. South Korea sold off their assets:
Motive: gobble up the entire business community, workforce, customer base and brand value built by Korean companies, often to break them apart, downsize them or shut them completely in order to eliminate competition for their imports.
Morgan Stanley, which had been the loudest in calling for a deepening of the crisis, inserted itself into many of these deals, collection huge commissions. This crisis also forced governments to sell public services to raise badly needed capital.
The Results: 300,000 workers were fired every month. In 1996, 63.7 percent of South Koreans identified as middle class; by 1999 that number was down to 38.4 percent. Free Market in Iraq Saddam did not pose a threat to U.S. security, but he did pose a threat to U.S. energy companies. He had recently signed contracts with a Russian oil giant and was in negotiations with France’s Total, leaving U.S. and British oil firms with nothing. Iraq’s economy had been anchored by its national oil company and two hundred state-owned companies, which produced food and materials for its industry, everything from cement to paper and cooking oil. The Arab nations were the lone holdouts in the globalized quest to reform the world with free market policies. The Arab nations needed to be forced. Washington’s game plan for Iraq:
Between March 20 and May 2, the U.S. military bombed Iraq in a "shock and awe" program that destroyed the infrastructure. Free market policies were immediately imposed, including:
In the original Washington plan, Iraq was going to become a frontier just as Russia has been in the early nineties, but this time it would be U.S. firms- not local ones or European, Russian, or Chinese competitors- that would be first in line for the easy billions. Paul Bremer was the head of the the Coalition Provisional Authority (CPA), the U.S.-controlled government of Iraq. Bremer said, “Getting inefficient state enterprises into private hands is essential for Iraq’s economic recovery.” Bremer announced new economic laws:
Bremer’s government stole $20 billion from the national oil company but held off on the privatization until later. Bremer launched a brand-new currency. We paid the U.K. firm De La Rue to do the printing, and bills were delivered in fleets of planes and distributed in armored vehicles and trucks that ran at least a thousand missions throughout the country. Within a few months, corporate plans were made:
Corporations were hired and paid by United States taxpayers to govern Iraq:
Iraqis had virtually no role in this plan at all. Only 15,000 Iraqi's were hired to work on the reconstruction during Bremer's tenure and Iraqi factories were not given contracts for supplies. Free market policies would also protect the corporations working in Iraq from risk:
The Blowback:
The Bush administration, trying to lock in their policies, decided to draft a new Constitution for Iraq, first with an interim version that locked in Bremer’s laws and then with a permanent constitution that attempted (but failed) to do the same. June 2003: Bremer sent word that all local elections must stop immediately. The new plan was for Iraq’s local leaders to be appointed by the occupation. November 2003: Paul Bremer cancelled the national elections and decided to handpick the members of an Iraqi Governing Council. An elected Iraqi government would have meant having to sacrifice the economic agenda behind the war. December 2006: The Iraq Study Group called for the U.S. to “assist Iraqi leaders to reorganize the national oil industry as a commercial enterprise” and to “encourage investment in Iraq’s oil sector by the international community and by international energy companies.” The Bush administration drafted a new oil law for Iraq:
It was a promise of poverty in a country where 95 percent of government revenues come from oil. Free Market Elsewhere Other countries with similar free market experiences as explained in The Shock Doctrine:
Free Market in the United States
Is this what we want? Content for this episode was largely collected from The Shock Doctrine, an incredible collection of research by Naomi Klein. Buy it from Amazon by clicking the link below: