The Shock Doctrine: The Rise of Disaster Capitalism

Neoliberalism is a theory of political economy that argues that all trade should be free, government services should be minimal, and all goods and services should be privatized in order to promote peace, prosperity, and democracy. It is generally associated with rightwing politics, although in the United States it is a set of beliefs embraced by both parties to some degree. 

A key theorist of neoliberalism is Milton Friedman, who taught for many years at the University of Chicago School of Economics. For this reason, neoliberalism is sometimes referred to as “Chicago School economics.” Neoliberalism is also closely related to neoconservatism: Neoconservatism is a form of neoliberalism with a strong emphasis on rightwing nationalism. Neoconservatism was embraced by the Republican party in the United States during the George W. Bush administration.

Privatization is the process of taking a nationalized asset or industry and selling it to private corporations. A core tenet of neoliberalism is that, essentially, all government assets and services should be privatized, including social security, utilities, and schools. When a state-owned asset is privatized, an auction is held, and it is sold to a corporate operator. A similar process occurs when the state privatizes a service like trash collection or security. The state announces a tender and businesses provide competing proposals about how they will fulfill the service requirements. Once they win the contract, the company is known as a contractor.

Shock therapy is literally the application of electroshocks to a person as part of a psychiatric treatment regime. Although it has somewhat fallen out of favor in the contemporary era, it was used for decades in the treatment of depression, “hysteria,” and other conditions. The core notion is that the electroshock destabilizes and then resets a person’s mental state, like how an electric shock can stabilize a heart rhythm. 

In political economy, shock therapy is the theory that the rapid implementation of neoliberal policies will “reset” the economic system, reduce inflation, and ultimately produce growth. This is often accomplished within the context of another “shock” to the body politic, such as natural disaster or military intervention. Klein also refers to this use of shock therapy as “shock doctrine,” which is where the title of the text comes from.

Structural adjustment is the term given to market reforms required by global institutions like the IMF and the World Bank before they will approve market stabilization or investment loans. Typically, these structural adjustment policies are neoliberal reforms, such as the privatization of national industries and assets, cuts to public spending, and liberalization of markets through the removal of price and currency controls.

The Washington Consensus is the shorthand for the belief across global institutions like the World Bank and IMF, as well as within the US government, that neoliberal economics is “the common core of wisdom embraced by all serious economists” (163). The term was first coined by British economist John Williamson in 1989.