Latin America's Shock Resistance

In less than two years, the lease on the largest and most important US military base in Latin America will run out. The base is in Manta, Ecuador, and Rafael Correa, the country's leftist president, has pronounced that he will renew the lease "on one condition: that they let us put a base in Miami--an Ecuadorean base. If there is no problem having foreign soldiers on a country's soil, surely they'll let us have an Ecuadorean base in the United States."

Since an Ecuadorean military outpost in South Beach is a long shot, it is very likely that the Manta base, which serves as a staging area for the "war on drugs," will soon shut down. Correa's defiant stand is not, as some have claimed, about anti-Americanism. Rather, it is part of a broad range of measures being taken by Latin American governments to make the continent less vulnerable to externally provoked crises and shocks.

This is a crucial development because for the past thirty-five years in Latin America, such shocks from outside have served to create the political conditions required to justify the imposition of "shock therapy"--the constellation of corporate-friendly "emergency" economic measures like large-scale privatizations and deep cuts to social spending that debilitate the state in the name of free markets. In one of his most influential essays, the late economist Milton Friedman articulated contemporary capitalism's core tactical nostrum, what I call the shock doctrine. He observed that "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."

Latin America has always been the prime laboratory for this doctrine. Friedman first learned how to exploit a large-scale crisis in the mid-1970s, when he advised Chilean dictator Gen. Augusto Pinochet. Not only were Chileans in a state of shock following Pinochet's violent overthrow of Socialist President Salvador Allende; the country was also reeling from severe hyperinflation. Friedman advised Pinochet to impose a rapid-fire transformation of the economy--tax cuts, free trade, privatized services, cuts to social spending and deregulation. It was the most extreme capitalist makeover ever attempted, and it became known as a Chicago School revolution, since so many of Pinochet's top aides and ministers had studied under Friedman at the University of Chicago. A similar process was under way in Uruguay and Brazil, also with the help of University of Chicago graduates and professors, and a few years later, in Argentina. These economic shock therapy programs were facilitated by far less metaphorical shocks--performed in the region's many torture cells, often by US-trained soldiers and police, and directed against those activists who were deemed most likely to stand in the way of the economic revolution.

In the 1980s and '90s, as dictatorships gave way to fragile democracies, Latin America did not escape the shock doctrine. Instead, new shocks prepared the ground for another round of shock therapy--the "debt shock" of the early '80s, followed by a wave of hyperinflation as well as sudden drops in the prices of commodities on which economies depended.

In Latin America today, however, new crises are being repelled and old shocks are wearing off--a combination of trends that is making the continent not only more resilient in the face of change but also a model for a future far more resistant to the shock doctrine.

When Milton Friedman died last year, the global quest for unfettered capitalism he helped launch in Chile three decades earlier found itself in disarray. The obituaries heaped praise on him, but many were imbued with a sense of fear that Friedman's death marked the end of an era. In Canada's National Post, Terence Corcoran, one of Friedman's most devoted disciples, wondered whether the global movement the economist had inspired could carry on. "As the last great lion of free market economics, Friedman leaves a void…. There is no one alive today of equal stature. Will the principles Friedman fought for and articulated survive over the long term without a new generation of solid, charismatic and able intellectual leadership? Hard to say."