Wednesday, December 12, 2012

Economics and Public Policy



Many Americans have been led to believe that our country’s economic values have been adopted by other countries without force or coercion.  In actuality, many economic changes are made after a disaster strikes, through force, either covertly or overtly.  Naomi Klein acknowledges this and uses this idea as the main thesis in her book, The Shock Doctrine.  Klein says that “we have been sold a fairy tale about how these radical policies have swept the globe; that they haven’t swept the globe on the backs of freedom and democracy, but they have needed shocks, they have needed crises…they have needed states of emergency.”  No other person understood this idea more than Milton Friedman, who taught at the University of Chicago.  Friedman believed in a free market with little to no government intervention.  He believed that the government should not have a large role in the economy and if left up to the people, the economy would correct itself.  Countries such as Chile, England, and the United States have used economic policy to dictate political policies upon their people. A good example of this would be Chile’s resistance to the United States and President Nixon’s demands for their economy to mirror the United States,’ basically hoping for some sort if crisis that would lead to economic reform, similar to the way the United States became an economic super power after World War II.

            In order to initiate a change in Chile’s economy, the University of Chicago sponsored students from Chile’s Catholic University to come and study under Milton Friedman.  After the students received their education about Friedman economics, they were sent back to Chile.    Meanwhile, despite efforts by President Nixon and the CIA to stop Salvador Allende from being elected President of Chile, he was indeed elected.  Allende’s economic views were far different from those of Milton Friedman.  Allende was in favor of government control over corporations, and was known as a Marxist.  President Nixon ordered for the head of the CIA to “make the economy scream.”  He wanted to create disaster in Chile, which would make a change seem necessary.  The United States tried to create instability in Chile’s economy, and finally staged an attack on the President.  The society in Chile went from peaceful to violent, and looked largely like a battlefield.  The tactics used were much like the “shock and awe” tactics used in the American military.  President Allende was soon killed, and Friedman and his colleagues presented their economic views to government officials in Chile.  Any people who disagreed with the change were captured, and some were even tortured.  This created an environment that would make it possible for those people to have their views erased from their memory, and the new beliefs could then be introduced.  Klein notes this with a quote, “From Chile to China to Iraq, torture has been a silent partner in the global free-market crusade,” (pg.19).  Years later proved that Friedman’s views failed in Chile, and only helped to make the rich richer and the poor poorer.  However, Friedman continued to call it a success, even going so far as to call it a “miracle.”  While it may not have been the economic success that the Chicago economists wanted, they did succeed in using shock to create change. 
            Friedman continued to push the idea that capitalism and freedom were in direct correlation with one another.  When Margaret Thatcher became Prime Minister of England, she adopted Friedman’s economic views.  Around the same time, Ronald Regan was elected President of the United States, using Friedman’s economic views also.  They had the same goals in place; to bring inflation down, and to privatize corporations.  However, shortly after Thatcher took power inflation and unemployment rose dramatically, and she became widely unpopular.  Thatcher realized that the only way to gain back popularity would be to take advantage of a disaster that would shock society.  She realized that using Friedman’s shock tactics could help her re-gain political power in England.  The ideal moment came when Argentina invaded British territory.  Thatcher comforted the public by assuring them that they would fight back, and she became known as the “Iron Lady.”  When England won the war, Thatcher won back her popularity, and she was re-elected for a second time.  She then used the economic shock therapy used by Milton Friedman, and closed the largest mining union in England.  Immediately afterwards she privatized virtually all corporations, and the University of Chicago’s system of economics was finally in place, exactly as she had planned from the beginning.  She continued to use economics as a tool to enforce public policy even though the gap between the rich and the poor increased drastically, just as it had in Chile.  By lending her support for unions in Poland, she helped to bring the University of Chicago’s economic policies to all of Eastern Europe.  “It was exactly that system of compromises checks and balances that Friedman’s counterrevolution was launched to methodically dismantle in country after country,” (Klein, pg. 25).  By creating instability there was shock, and the slate could be wiped clean, allowing new ideas to form.  President Regan was enforcing the same policies in the United States, saying that Friedman’s policies would lead “the march of freedom and democracy....,” leaving Marxism behind. 
            When Hurricane Katrina hit New Orleans, it devastated the entire United States.  The shock of what had happened left many citizens vulnerable, and they were willing to do anything necessary to survive the catastrophe.  Friedman realized that this disaster was a huge opportunity to privatize and reform the school systems in New Orleans.  Friedman acknowledged that “Most New Orleans schools are in ruins.”  He went on to say more about how a disaster can provide opportunity.  “The children are now scattered all over the country.  This is a tragedy.  It is also an opportunity to radically reform the educational system,” (Friedman, pg. 5).  Once again, with Friedman’s influence, leaders were able to work the system to achieve a certain outcome.  With a vision already in place, officials were able to tear the school system apart and rebuild it.  “In sharp contrast to the glacial pace with which the levees were repaired and the electricity grid was brought back online, the auctioning off of New Orleans’ school system took place with military speed and precision,” (Klein, pg. 6).  Shortly after the hurricane, the school system in New Orleans was completely privatized.   
            The examples of economic shock therapy in Chile, England, and the United States show how we can use shock to fix a situation.  Klein makes the argument that officials are always waiting for some disaster to strike in order to change society and enforce public policy.  When social pain is caused, confusion and shock follow, creating an environment that makes people move toward change.  When people encounter trauma, they are too focused on survival to have any other concerns, and they accept situations that they would not normally accept.  In all of the examples shown above, the plan was written even before the disaster happened, and the people in those countries had no choice but to support the changes being made.  Friedman says that “only a crisis-actual or perceived-produces real change,” (pg. 7).  However, while change does follow from disaster, it is not always for the better.  These tactics enable leaders to force their policies on to their people, by connecting the discourse of the military with free market economics.  In the event of more disasters in United States and other countries, there may be no way to stop this cycle from continuing.  The leaders in the United States and other countries will continue to use these economic shock tactics for years to come.          
                   
           
                        
             
References

Klein, Naomi. (2007).  The Shock Doctrine: The Rise of Disaster Capitalism.  New York, N.Y:  Henry Holt and Company.
           

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