Milton Friedman and the Destruction of Argentina

A CULTURE OF DEFIANCE: History of the Reform-Conservative Party of Canada

It is just as important to study Milton Friedman as Leo Strauss, in understanding Canada's neoconservative movement.

Friedman is one of the authors of the "shock therapy" economic system, where disasters are created or exploited, by the corporate sector. Free Marketeers will call it progress. Others see it as shocking and inhumane.

Because in order for the U.S. to control a foreign nation's economy, an authoritarian is needed, and that authoritarian is often a ruthless dictator. Case in point, Augustus Pinochet in Chile.

If you read Lawrence Martin's Harperland, or Christian Nadeau's Rogue in Power, you'll see how Stephen Harper took control, using ruthless means, and is now in a position to implement Friedman's policies. A bloodless coup.

Argentina's Shock Therapy

In her memoirs, Margaret Thatcher says of Argentina:

Whatever the Argentineans thought about it at the time ... the Falklands War provided a shock which brought first democracy and more recently, under President Menem, the economic benefits of free-market policies. Inflation has been brought down and a far-reaching privatization programme has been undertaken. Subsidies, regulation and tariffs have all been cut. Economic growth has sharply accelerated.

A little "shock" was good for them, says the lady who once declared that there was "no such thing as society".

In their book Commanding Heights, Daniel Yergin and Joseph Stanislaw, provide a bit of insight into the pre-coup Argentina, and what Thatcher called a "black economy".

Argentina had long been an economic paradox. How did a country that was one of the world's richest in the first decades of the twentieth century, end up in such economic disorder? A good part of the answer rested with Juan Peron. He is now best remembered, of course, as the husband of Evita, but in the years after World War II he was the embodiment of populism with an almost fascist tinge. Building on the prewar popularity of fascist ideas, Peron turned Argentina into a corporatist country, with powerful organized interest groups, big business, labor unions, military, farmers—that negotiated with the state and with each other for position and resources. He incited nationalist passions, stoked pretensions of grandeur, and pursued stridently anti-American policies. He nationalized large parts of the economy and put up trade barriers to defend them. He cut Argentina's links to the world economy which had been one of its great sources of wealth—embedded inflation in the society, and destroyed the foundations of sound economic growth. (2)

Viewed through a free-market lens, Peron would have been a disaster. So many opportunities for profit going to waste.

Peron was no saint, but according to Namomi Klein in The Shock Doctrine, life for Argentines was not as bad as suggested. Protectionism made many things unaffordable ($2000 just to install a phone), but the welfare state was alive and well. And like Chile, before their U.S. financed coup, the country had just undergone an intellectual revolution, where the arts thrived.

By the 1950s, Argentina had the largest middle class on the continent. Juan Peron had introduced Keynesian style economics "pouring public money into infrastructure projects such as highways and steel plants, giving local businesses generous subsidies to build their new factories, churning out cars and washing machines, and keeping out foreign imports with forbiddingly high tariffs." (3)

Naturally, this was anathema to the free marketeers, and when Peron died and his widow Isabel named leader, they sprang into action. From Henry Kissinger's records, recently made public, we learn that the U.S. were behind the 1976 coup that initiated the Argentine shock therapy.

Wages fell to 40% of what they had been and poverty became the norm.

But worse, was the wave of terror, under the planted dictator, General Jorge Videla, that followed the Chilean blueprint, to the Milton Friedman letter. According to Klein's Shock Doctrine:

When someone was targeted to be eliminated, a fleet of military vehicles showed up at that person's home or workplace and cordoned off the block, often with a helicopter buzzing overhead. In broad daylight and in full view of the neighbours, police or soldiers battered down the door and dragged out the victim, who often shouted his or her name before disappearing into a waiting Ford Falcon, in the hope that news of the event would reach the family.

Some "covert" operations were even more brazen: police were known to board crowded city buses and drag passengers off by their hair. In the city of Santa Fe, a couple was kidnapped right at the altar on their wedding day in front of a church filled with people."

The public character of terror did not stop with the initial capture. Once in custody, prisoners in Argentina were taken to one of more than three hundred torture camps across the country. Many of them were located in densely populated residential areas; one of the most notorious in a former athletic club on a busy street in Buenos Aires, another in a schoolhouse in central Bahia Blanca and yet another in a wing of a working hospital. At these torture centres, military vehicles sped in and out at odd hours, screams could be heard through the badly insulated walls and strange, body-shaped parcels were spotted being carried in and out, all silently registered by the nearby residents.

The Argentine junta was particularly sloppy about disposing of its victims. A country walk could end in horror because mass graves were barely concealed. Bodies would show up in public garbage bins, missing fingers and teeth (much as they do today in Iraq), or they would wash ashore on the banks of the Rio de la Plata, sometimes half a dozen at a time, after one of the junta's "death flights." On occasion, they even rained down from helicopters into farmers' fields."

All Argentines were in some way enlisted as witnesses to the erasure of their fellow citizens, yet most people claimed not to know what was going on. (much like Nazi Germany). There is a phrase Argentines use to describe the paradox of wide-eyed knowing and eyes-closed terror that was the dominant state of mind in those years: "We did not know what nobody could deny." (4)

As Canada is now in the throes of its own shock therapy, the need for torture chambers are not necessary.

We have our authoritarian leader in Stephen Harper, who allows no dissent. Witch hunts are now the norm, and while people don't disappear, their careers are ruined or threatened, if they dare to challenge.

The G-20 saw the worst human rights abuses and mass arrests in Canadian history; and police brutality at protests like the one over the Prison Farm closures, saw no age barrier. Those from 14 to 88 were victimized.

We are now part of the Shock Doctrine under the Harper regime, and what is happening in our country is just as shocking to many, as they were in places like Chile and Argentina.

And "the paradox of wide-eyed knowing and eyes-closed terror", was evident, when despite the horrors of the G-20, many Canadians simply shrugged and said "you should have stayed home".

Sources:

1. The Path to Power, By Margaret Thatcher, Harper Collins, 1995, ISBN: 0-06-017270-3, Pg. 583

2. The Commanding Heights: The Battle for the World Economy, By Daniel Yergin and Joseph Stanislaw, Touchstone, 2002, ISBN: 0-684-82975-4, Pg. 242

3. The Shock Doctrine: The Rise of Disaster Capitalism, By Naomi Klein, Vintage Canada, 2007, ISBN: 978-0-676-97801-8, Pg. 63

4. Klein, 2007, Pg. 106-107

The Deficit Cure: Acupuncture or Shock Therapy?

When the neoconservative movement in Canada first appeared on the radar of many journalists, it was tied to the administrations of Margaret Thatcher and Ronald Reagan. Both of these leaders launched aggressive attacks on the welfare state, and left devastation in their paths.

Grant Devine in Saskatchewan, Ralph Klein in Alberta and Mike Harris in Ontario, all sought to experiment with the Thatcher/Reagan theories in their respective provinces.

On the federal scene, the Reform Party had their ideology in check, and were just waiting for their turn.

At the time, Thatcher and Reagan were not on tour, so Canada's neocons were taught strategy by New Zealand politician, Roger Douglas.

He held information seminars, speaking to the Harris caucus in Ontario, with Tony Clement, John Baird and Jim Flaherty in attendance; and Klein's in Alberta, indoctrinating Stockwell Day.

But the most important lecture, when it comes to the future of Canada, was presented to the Reform Party of Preston Manning and Stephen Harper, at their 1991 Assembly.

Douglas was introduced by Preston Manning, the only assembly speaker to be so honoured. And Manning told the delegates: There are three basic reasons why we have invited Sir Roger Douglas to be with us ... and three reasons why Reformers should pay close attention to what he has to say ... Sir Roger is an authority in fiscal reform and has advocated and promoted many of the fiscal reforms ... He is not only a reformer in word, he is a reformer in deed. Sir Roger deregulated the financial sector, phased down agricultural and other subsidies .. phased out import controls and drastically reduced tariffs levels. He instituted a 10% flat rate consumption tax (GST)*, with virtually no exemptions ... (1)

And Roger Douglas's most important message to his followers was "don't blink". Once you start cutting, keep going.

And if you developed a case of blepharospasm, uncontrollable eye blinking, a little acupuncture would fix you right up.

Because what Douglas failed to mention was how his policies affected New Zealand.

Dr. John Warnock, travelled to New Zealand to study the effects of what New Zealanders dubbed 'Rogernomics.' The figures tell a story of devastation - a word used by New Zealand's own agricultural minister to describe the state of agriculture in four years after the 'reforms': A 40 per cent drop in farm income; a 50 per cent drop in the value of farm land; a policy of paying 3,000 farmers incentives of $ 45,000 to leave and the suggestion that another 15,000 (out of 79,000) should follow them. Unemployment, which had been at 4 per cent before Douglas's reforms, jumped to over 12 per cent in just over a year and is still increasing.

"Douglas completely eliminated regional development grants and subsidies to rural services. Says Warnock, 'They had things like subsidized petroleum - regardless of where you were the price was the same - subsidized train service, bus service, airport service. They privatized all these things and the prices immediately skyrocketed.' A massive de-population of the countryside resulted, and approximately 40,000 New Zealanders per year have since left the country for Australia to find work ... (1)

He should have blinked.

Shock Therapy

While Roger Douglas may present us with a little trip down memory lane, Stephen Harper and Jim Flaherty will probably forgo acupuncture for shock therapy.

This is the remedy prescribed by Milton Friedman, and articulated at places like the Fraser Institute. Friedman believed in taking advantage of disasters, like Katrina, but when none presented themselves, they could simply be created.

His most famous induced disaster, was the Chilean experiment.

In 1970, when a socialist, Salvador Allende, was elected president, many of Chile's elite, were not pleased.

Allende, a physician by training, understood the cost that malnutrition imposed upon the poor and set out to alleviate the grinding poverty in which so many Chileans were trapped. He ensured that every Chilean schoolchild had access to at least a half-liter of milk each day, and that their parents had access to jobs and the means to feed and educate their children. Median incomes began to rise dramatically in the first two years of Allende's term.

To pay for these social programs designed to create opportunities for the poor, rich Chileans who had lived all their lives off of rents, dividends and interest and who had never paid a dime in taxes, found themselves paying taxes for the first time and being forced to morally justify their lives of luxurious leisure at the expense of the poor. They didn't like it one bit. And they began to complain to their friends in Washington. (2)

Fortunately for them Washington was already aware of the situation, and with the help of several corporations, engineered a coup to oust Allende and place the murderous Augustus Pinochet in the presidential palace.

Friedman then took over, encouraging Pinochet to implement "shock therapy" on the people of Chile.

Friedman advised Pinochet to impose a rapid-fire transformation of the economy—tax cuts, free trade, privatized services, cuts to social spending and deregulation. Eventually, Chileans even saw their public schools replaced with voucher-funded private ones. It was the most extreme capitalist makeover ever attempted anywhere, and it became known as a "Chicago School" revolution, since so many of Pinochet's economists had studied under Friedman at the University of Chicago. Friedman predicted that the speed, suddenness and scope of the economic shifts would provoke psychological reactions in the public that "facilitate the adjustment." He coined a phrase for this painful tactic: economic "shock treatment." In the decades since, whenever governments have imposed sweeping free-market programs, the all-at-once shock treatment, or "shock therapy," has been the method of choice. (3)

And though Friedman and his Chicago School are still being hailed as heroes by Neoliberals/Neoconservative/Free Marketeers everywhere, his remaking of Chile was an absolute failure.

.. The country's period of steady growth that is held up as proof of its miraculous success, did not begin until the mid-eighties, a full decade after the Chicago Boys implemented shock therapy and well after Pinochet was forced to make a radical course correction.

That's because in 1982, despite its strict adherence to Chicago doctrine, Chile's economy crashed: its debt exploded, it faced hyperinflation once again and unemployment hit 30 percent—ten times higher than it was under Allende. The main cause was that the piranhas, the Enron-style financial houses that the Chicago Boys had freed from all regulation, had bought up the country's assets on borrowed money and run up an enormous debt of $14 billion.

The situation was so unstable that Pinochet was forced to do what Allende had done: he nationalized many of these companies. In the face of the debacle, almost all the Chicago Boys lost their influential government posts. (4)

So despite the fact that both of these experiments in economic reform were catastrophes, we know that it will not change Flaherty's or Harper's ideology.

Canadians will probably be subjected to a little "shock" in the upcoming budget, or if not then, in the not too distant future. The convoluted belief being that if we associate pain with social programs, we will not be too quick to want to reintroduce them (Friedman was a nut), especially if they convince us that they have been replaced with something better.

Poverty being good for the soul.

So slap on the electrodes boys. I'm ready.

Footnotes:

*The Reform Party was conflicted about the GST, with most wanting it scrapped if they came to power. Harper himself convinced them to keep the GST but eliminate any exemptions.

Sources:

1. Preston Manning and the Reform Party, By Murray Dobbin, Goodread Publishing, 1992, ISBN: 0-88780-161-7, pg. 113-114

2. Free Market Fundamentalism: Friedman, Pinochet and the "Chilean Miracle", By Scott Bidstrup

3. The Shock Doctrine: The Rise of Disaster Capitalism, By Naomi Klein, Vintage Canada, 2007, ISBN: 978-0-676-97801-8, Pg. 8

4. Klein, 2007, Pg. 123