The Shock Doctrine - The Rise of Disaste Part 5

Argentina was not unique in this regard. By 1999, the Chicago School international alumni included more than twenty-five government ministers and more than a dozen central bank presidents from Israel to Costa Rica, an extraordinary level of influence for one university department.35 In Argentina, as in so many other countries, the Chicago Boys formed a kind of ideological pincer around the elected government, one group squeezing from within, another exerting its pressure from Washington. For instance, the IMF delegations to Buenos Aires were often led by Claudio Loser, the Argentine Chicago Boy, which meant that when he met with the finance ministry and the central bank, the meetings were not adversarial negotiations but collegial discussions among friends, former cla.s.smates at the University of Chicago and recent coworkers on Nineteenth Street. A book published in Argentina about the effect of this global economic fraternity is aptly t.i.tled In Argentina, as in so many other countries, the Chicago Boys formed a kind of ideological pincer around the elected government, one group squeezing from within, another exerting its pressure from Washington. For instance, the IMF delegations to Buenos Aires were often led by Claudio Loser, the Argentine Chicago Boy, which meant that when he met with the finance ministry and the central bank, the meetings were not adversarial negotiations but collegial discussions among friends, former cla.s.smates at the University of Chicago and recent coworkers on Nineteenth Street. A book published in Argentina about the effect of this global economic fraternity is aptly t.i.tled Buenos Muchachos, Buenos Muchachos, a reference to Martin Scorsese's mafia cla.s.sic, a reference to Martin Scorsese's mafia cla.s.sic, Goodfellas, Goodfellas,36 The members of this fraternity were in enthusiastic agreement about what needed to be done with Argentina's economy-and how to pull it off. The Cavallo Plan, as it came to be called, was based on the clever packaging trick that both the World Bank and the IMF had perfected: harnessing the chaos and desperation of a hyperinflation crisis to pa.s.s privatization off as an integral part of the rescue mission. So, to stabilize the money system, Cavallo quickly made ma.s.sive 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.37This dealt with the runaway currency but "obfuscated" the other half of the program.

Argentina's dictatorship, for all its commitment to pleasing foreign investors, had left large and desirable pieces of the economy in state hands, from the national airline to Patagonia's impressive oil reserves. As far as Cavallo and his Chicago Boys were concerned, the revolution was only half finished, and they were determined to use the economic crisis to complete their work.

In the early nineties, the Argentine state sold off the riches of the country so rapidly and so completely that the project far surpa.s.sed what had taken place in Chile a decade earlier. By 1994, 90 percent of all state enterprises had been sold to private companies, including Citibank, Bank Boston, France's Suez and Vivendi, Spain's Repsol and Telefonica. Before making the sales, Menem and Cavallo had generously performed a valuable service for the new owners: they had fired roughly 700,000 of their workers, according to Cavallo's own estimates; some put the number much higher. The oil company alone lost 27,000 workers during the Menem years. An admirer of Jeffrey Sachs, Cavallo called this process "shock therapy." Menem had an even more brutal phrase for it: in a country still traumatized by ma.s.s torture, he called it "major surgery without anesthetic."2438 In the midst of the transformation, Time Time magazine put Menem on its cover, his face grinning out of the middle of a sunflower, under the headline "Menem's Miracle." magazine put Menem on its cover, his face grinning out of the middle of a sunflower, under the headline "Menem's Miracle."39 And it was a miracle-Menem and Cavallo had pulled off a radical and painful privatization program without sparking a national revolt. How had they done it? And it was a miracle-Menem and Cavallo had pulled off a radical and painful privatization program without sparking a national revolt. How had they done it?

Years later, Cavallo explained. "At the time of hyperinflation it's terrible for the people, particularly for low-income people and small savers, because they see that in a few hours or in a few days they are being told their salaries got destroyed by the price increases, which take place at an incredible speed. That is why the people ask the government, 'Please do something.' And if the government comes with a good stabilization plan, that is the opportunity to also accompany that plan with other reforms. . . the most important reforms were related to the opening up of the economy and to the deregulation and the privatization process. But the only way to implement all those reforms was, at that time, to take advantage of the situation created by hyperinflation, because the population was ready to accept drastic changes in order to eliminate hyperinflation and to go back to normality."40 In the long term, Cavallo's program in its entirety would prove disastrous for Argentina. His method of stabilizing the currency-pegging the peso to the U.S. dollar-made it so expensive to produce goods inside the country that local factories could not compete with the cheap imports flooding the country. So many jobs were lost that well over half the country would eventually be pushed below the poverty line. In the short term, however, the plan worked brilliantly: Cavallo and Menem had smuggled privatization in while the country was in shock from hyperinflation. Crisis had done its job.

What Argentina's leaders pulled off in this period was a psychological more than an economic technique. As Cavallo, a junta veteran, well understood, in moments of crisis, people are willing to hand over a great deal of power to anyone who claims to have a magic cure-whether the crisis is a financial meltdown or, as the Bush administration would later show, a terrorist attack.

And that is how the crusade that Friedman began managed to survive the dreaded transition to democracy-not by its proponents persuading electorates of the wisdom of their worldview, but by moving deftly from crisis to crisis, expertly exploiting the desperation of economic emergencies to push through policies that would tie the hands of fragile new democracies. Once the tactic was perfected, opportunities just seemed to multiply. The Volcker Shock would be followed by the Mexican Tequila Crisis in 1994, the Asian Contagion in 1997 and the Russian Collapse in 1998, which was followed shortly afterward by one in Brazil. When these shocks and crises started to lose their power, even more cataclysmic ones would appear: tsunamis, hurricanes, wars and terrorist attacks. Disaster capitalism was taking shape.

PART 4.

LOST IN TRANSITION.

WHILE WE WEPT, WHILE WE TREMBLED, WHILE WE DANCED.

These worst of times give rise to the best of opportunities for those who understand the need for fundamental economic reform.

-Stephan Haggard and John Williamson,The Political Economy of Policy Reform, 1994 1994

CHAPTER 9.

SLAMMING THE DOOR ON HISTORY.

A CRISIS IN POLAND, A Ma.s.sACRE IN CHINA.

I live in a Poland that is now free, and I consider Milton Friedman to be one of the main intellectual architects of my country's liberty.

-Leszek Balcerowicz, former finance minister of Poland, November 20061.

There's a certain chemical that gets released in your stomach when you make ten times your money. And it's addictive.

-William Browder, a U.S. money manager, on investing in Poland in the early days of capitalism2.

We certainly must not stop eating for fear of choking.

-People's Daily, the official state newspaper, on the need to continue free-market reforms after the Tiananmen Square ma.s.sacre the official state newspaper, on the need to continue free-market reforms after the Tiananmen Square ma.s.sacre3 Before the Berlin Wall fell, becoming the defining symbol of the collapse of Communism, there was another image that held out the promise of Soviet barriers coming down. It was Lech Walesa, a laid-off electrician with a handlebar moustache and disheveled hair, climbing over a steel fence festooned with flowers and flags in Gdansk, Poland. The fence protected the Lenin shipyards and the thousands of workers who had barricaded themselves inside to protest a Communist Party decision to raise the price of meat.

The workers' strike was an unprecedented show of defiance against the Moscow-controlled government, which had ruled Poland for thirty-five years. No one knew what would happen: Would Moscow send tanks? Would they fire on the strikers and force them to work? As the strike wore on, the shipyard became a pocket of popular democracy within an authoritarian country, and the workers expanded their demands. They no longer wanted their work lives controlled by party apparatchiks claiming to speak for the working cla.s.s. They wanted their own independent trade union, and they wanted the right to negotiate, bargain and strike. Not waiting for permission, they voted to form that union and called it Solidarnosc, Solidarity.4That was 1980, the year the world fell in love with Solidarity and with its leader, Lech Walesa.

Walesa, then thirty-six, was so in tune with the aspirations of Poland's workers that they seemed in spiritual communion. "We eat the same bread!" he bellowed into the microphone in the Gdansk shipyard. It was a reference not only to Walesa's own una.s.sailable blue-collar credentials but also to the powerful role that Catholicism played in this trail-blazing new movement. With religion frowned upon by party officials, the workers wore their faith as a badge of courage, lining up to take Communion behind the barricades. Walesa, a bracing mix of bawdy and pious, opened the Solidarity office with a wooden crucifix in one hand and a bouquet of flowers in the other. When it came time to sign the first landmark labor agreement between Solidarity and the government, Walesa marked his name with "a giant souvenir pen bearing the likeness of John Paul II." The admiration was mutual; the Polish pope told Walesa that his prayers were with Solidarity.5 Solidarity spread through the country's mines, shipyards and factories with ferocious speed. Within a year, it had 10 million members-almost half of Poland's working-age population. Having won the right to bargain, Solidarity started making concrete headway: a five-day work week instead of six, and more say in the running of factories. Tired of living in a country that worshipped an idealized working cla.s.s but abused actual workers, Solidarity members denounced the corruption and brutality of the party functionaries who answered not to the people of Poland but to remote and isolated bureaucrats in Moscow. All the desire for democracy and self-determination suppressed by one-party rule was being poured into local Solidarity unions, sparking a ma.s.s exodus of members from the Communist Party.

Moscow recognized the movement as the most serious threat yet to its Eastern empire. Inside the Soviet Union, opposition was still coming largely from human rights activists, many of whom were on the political right. But Solidarity's members couldn't easily be dismissed as stooges of capitalism-they were workers with hammers in their hands and coal dust in their pores, the people who should, according to Marxist rhetoric, have been the party's base.25 Even more threatening, Solidarity's vision was everything the party was not: democratic where it was authoritarian; dispersed where it was centralized; partic.i.p.atory where it was bureaucratic. And its 10 million members had the power to bring Poland's economy to a standstill. As Walesa taunted, they might lose their political battles, "but we will not be compelled to work. Because if people want us to build tanks, we will build streetcars. And trucks will go backward if we build them that way. We know how to beat the system. We are pupils of that system." Even more threatening, Solidarity's vision was everything the party was not: democratic where it was authoritarian; dispersed where it was centralized; partic.i.p.atory where it was bureaucratic. And its 10 million members had the power to bring Poland's economy to a standstill. As Walesa taunted, they might lose their political battles, "but we will not be compelled to work. Because if people want us to build tanks, we will build streetcars. And trucks will go backward if we build them that way. We know how to beat the system. We are pupils of that system."

Solidarity's commitment to democracy inspired even party insiders to rebel. "Once I was so naive as to think that a few evil men were responsible for the errors of the party," Marian Arendt, a member of the Central Committee, told a Polish newspaper. "Now I no longer have such illusions. There is something wrong in our whole apparatus, in our entire structure."6 In September 1981, Solidarity's members were ready to take their movement to the next stage. Nine hundred Polish workers gathered once again in Gdansk for the union's first national congress. There, Solidarity turned into a revolutionary movement with aspirations to take over the state, with its own alternative economic and political program for Poland. The Solidarity plan stated, "We demand a self-governing and democratic reform at every management level and a new socioeconomic system combining the plan, self-government and the market." The centrepiece was a radical vision for the huge state-run companies, which employed millions of Solidarity members, to break away from governmental control and become democratic workers' cooperatives. "The socialized enterprise," the program stated, "should be the basic organizational unit in the economy. It should be controlled by the workers council representing the collective and should be operatively run by the director, appointed through compet.i.tion and recalled by the council."7 Walesa opposed this demand, fearing it was such a challenge to party control that it would provoke a crackdown. Others argued that the movement needed a goal, a positive hope for the future, not just an enemy. Walesa lost the debate, and the economic program became official Solidarity policy. Walesa opposed this demand, fearing it was such a challenge to party control that it would provoke a crackdown. Others argued that the movement needed a goal, a positive hope for the future, not just an enemy. Walesa lost the debate, and the economic program became official Solidarity policy.

Walesa's fears of a crackdown turned out to be well founded. Solidarity's mounting ambition frightened and infuriated Moscow. Under intense pressure, Poland's leader, General Wojciech Jaruzelski, declared martial law in December 1981. Tanks rolled through the snow to surround factories and mines, Solidarity's members were rounded up in the thousands, and its leaders, including Walesa, were arrested and imprisoned. As Time Time reported, "Soldiers and police used force to clear out resisting workers, leaving at least seven dead and hundreds injured when miners in Katowice fought back with axes and crowbars." reported, "Soldiers and police used force to clear out resisting workers, leaving at least seven dead and hundreds injured when miners in Katowice fought back with axes and crowbars."8 Solidarity was forced underground, but during the eight years of police-state rule, the movement's legend only grew. In 1983, Walesa was awarded the n.o.bel Peace Prize, although his activities were still restricted and he could not accept the prize in person. "The Peace Prize laureate's seat is empty," the representative from the n.o.bel Committee said at the ceremony. "Let us therefore try even harder to listen to the silent speech from his empty place."

The empty s.p.a.ce was a fitting metaphor because, by that time, everyone seemed to see what they wanted in Solidarity: the n.o.bel Committee saw a man who "espoused no other weapon than the peaceful strike weapon."9 The left saw redemption, a version of socialism that was not tainted by the crimes of Stalin or Mao. The right saw evidence that Communist states would meet even moderate expressions of dissent with brutal force. The human rights movement saw prisoners jailed for their beliefs. The Catholic Church saw an ally against Communist atheism. And Margaret Thatcher and Ronald Reagan saw an opening, a crack in the Soviet armor, even though Solidarity was fighting for the very rights that both leaders were doing their best to stamp out at home. The longer the ban lasted, the more powerful the Solidarity mythology became. The left saw redemption, a version of socialism that was not tainted by the crimes of Stalin or Mao. The right saw evidence that Communist states would meet even moderate expressions of dissent with brutal force. The human rights movement saw prisoners jailed for their beliefs. The Catholic Church saw an ally against Communist atheism. And Margaret Thatcher and Ronald Reagan saw an opening, a crack in the Soviet armor, even though Solidarity was fighting for the very rights that both leaders were doing their best to stamp out at home. The longer the ban lasted, the more powerful the Solidarity mythology became.

By 1988, the terror of the initial crackdown had eased, and Polish workers were once again staging huge strikes. This time, with the economy in free fall, and the new, moderate regime of Mikhail Gorbachev in power in Moscow, the Communists gave in. They legalized Solidarity and agreed to hold snap elections. Solidarity split in two: there was now the union and a new wing, Citizens' Committee Solidarity, that would partic.i.p.ate in the elections. The two bodies were inextricably linked; Solidarity leaders were the candidates, and because the electoral platform was vague, the only specifics of what a Solidarity future might look like were provided by the union's economic program. Walesa himself didn't run, choosing to maintain his role as head of the union wing, but he was the face of the campaign, which ran under the slogan "With us, you're safer."10 The results were humiliating for the The results were humiliating for the Communists and glorious for Solidarity: of the 261 seats in which Solidarity ran candidates, it won 260 of them.26 Walesa, maneuvering behind the scenes, had the post of prime minister filled by Tadeusz Mazowiecki. He had little of Walesa's charisma, but as the editor of the Solidarity weekly newspaper, he was considered one of the movement's leading intellectuals. Walesa, maneuvering behind the scenes, had the post of prime minister filled by Tadeusz Mazowiecki. He had little of Walesa's charisma, but as the editor of the Solidarity weekly newspaper, he was considered one of the movement's leading intellectuals.

The Shock of Power

As Latin Americans had just learned, authoritarian regimes have a habit of embracing democracy at the precise moment when their economic projects are about to implode. Poland was no exception. The Communists had been mismanaging the economy for decades, making one disastrous, expensive mistake after another, and it was at the point of collapse. "To our misfortune, we have won!" Walesa famously (and prophetically) declared. When Solidarity took office, debt was $40 billion, inflation was at 600 percent, there were severe food shortages and a thriving black market. Many factories were making products that, with no buyers in sight, were destined to rot in warehouses.11 For Poles, the situation made for a cruel entry into democracy. Freedom had finally come, but few had the time or the inclination to celebrate because their paychecks were worthless. They spent their days lining up for flour and b.u.t.ter if there happened to be any in the stores that week. For Poles, the situation made for a cruel entry into democracy. Freedom had finally come, but few had the time or the inclination to celebrate because their paychecks were worthless. They spent their days lining up for flour and b.u.t.ter if there happened to be any in the stores that week.

All summer following its triumph at the polls, the Solidarity government was paralyzed by indecision. The speed of the collapse of the old order and the sudden election sweep had been shocks in themselves: in a matter of months, Solidarity activists went from hiding from the secret police to being responsible for paying the salaries of those same agents. And now they had the added shock of discovering that they barely had enough money to make the payroll. Rather than building the post-Communist economy they had dreamed of, the movement had the far more pressing task of avoiding a complete meltdown and potential ma.s.s starvation.

Solidarity's leaders knew they wanted to put an end to the state's viselike grip on the economy, but they weren't at all clear about what could replace it. For the movement's militant rank and file, this was the chance to test their economic program: if the state-run factories were converted to workers' cooperatives, there was a chance they could become economically viable again-worker management could be more efficient, especially without the added expense of party bureaucrats. Others argued for the same gradual approach to transition that Gorbachev was advocating at the time in Moscow- slow expansion of the areas in which supply-and-demand monetary rules apply (more legal shops and markets), combined with a strong public sector modeled on Scandinavian social democracy.

But as had been the case in Latin America, before anything else could happen, Poland needed debt relief and some aid to get out of its immediate crisis. In theory, that's the central mandate of the IMF: providing stabilizing funds to prevent economic catastrophes. If any government deserved that kind of lifeline it was the one headed by Solidarity, which had just pulled off the Eastern Bloc's first democratic ouster of a Communist regime in four decades. Surely, after all the Cold War railing against totalitarianism behind the Iron Curtain, Poland's new rulers could have expected a little help.

No such aid was on offer. Now in the grips of Chicago School economists, the IMF and the U.S. Treasury saw Poland's problems through the prism of the shock doctrine. An economic meltdown and a heavy debt load, compounded by the disorientation of rapid regime change, meant that Poland was in the perfect weakened position to accept a radical shock therapy program. And the financial stakes were even higher than in Latin America: Eastern Europe was untouched by Western capitalism, with no consumer market to speak of. All of its most precious a.s.sets were still owned by the state - prime candidates for privatization. The potential for rapid profits for those who got in first was tremendous.

Confident in the knowledge that the worse things got, the more likely the new government would be to accept a total conversion to unfettered capitalism, the IMF let the country fall deeper and deeper into debt and inflation. The White House, under George H. W. Bush, congratulated Solidarity on its triumph against Communism but made it clear that the U.S. administration expected Solidarity to pay the debts acc.u.mulated by the regime that had banned and jailed its members-and it offered only $119 million in aid, a pittance in a country facing economic collapse and in need of fundamental restructuring.

It was in this context that Jeffrey Sachs, then thirty-four, started working as an adviser to Solidarity. Since his Bolivian exploits, the hype surrounding Sachs had reached feverish levels. Marveling at how he could serve as economic shock doctor to half a dozen countries and still hold down his teaching job, the Los Angeles Times Los Angeles Times p.r.o.nounced Sachs-who still looked like a member of the Harvard debate team- the "Indiana Jones of Economics." p.r.o.nounced Sachs-who still looked like a member of the Harvard debate team- the "Indiana Jones of Economics."12 Sachs's work in Poland had begun before Solidarity's election victory, at the request of the Communist government. It started with a one-day trip, during which he met with the Communist government and with Solidarity. It was George Soros, the billionaire financier and currency trader, who had enlisted Sachs to play a more hands-on role. Soros and Sachs traveled to Warsaw together, and as Sachs recalls, "I told the Solidarity group and the Polish government that I would be willing to become more involved to help address the deepening economic crisis."13 Soros agreed to cover the costs for Sachs and his colleague David Lipton, a staunch free-market economist then working at the IMF, to set up an ongoing Poland mission. When Solidarity swept the elections, Sachs began working closely with the movement. Soros agreed to cover the costs for Sachs and his colleague David Lipton, a staunch free-market economist then working at the IMF, to set up an ongoing Poland mission. When Solidarity swept the elections, Sachs began working closely with the movement.

Though he was a free agent, not on the payroll of either the IMF or the U.S. government, Sachs, in the eyes of many of Solidarity's top officials, possessed almost messianic powers. With his high-level contacts in Washington and legendary reputation, he seemed to hold the key to unlocking the aid and debt relief that was the new government's only chance. Sachs said at the time that Solidarity should simply refuse to pay the inherited debts, and he expressed confidence that he could mobilize $3 billion in support-a fortune compared with what Bush had offered.14 He had helped Bolivia land loans with the IMF and renegotiated its debts; there seemed no reason to doubt him. He had helped Bolivia land loans with the IMF and renegotiated its debts; there seemed no reason to doubt him.

That help, however, came at a price: for Solidarity to get access to Sachs's connections and powers of persuasion, the government first needed to adopt what became known in the Polish press as "the Sachs Plan" or "shock therapy."

It was an even more radical course than the one imposed on Bolivia: in addition to eliminating price controls overnight and slashing subsidies, the Sachs Plan advocated selling off the state mines, shipyards and factories to the private sector. It was a direct clash with Solidarity's economic program of worker ownership, and though the movement's national leaders had stopped talking about the controversial ideas in that plan, they remained articles of faith for many Solidarity members. Sachs and Lipton wrote the plan for Poland's shock therapy transition in one night. It was fifteen pages long and, Sachs claimed, was "the first time, I believe, that anyone had written down a comprehensive plan for the transformation of a socialist economy to a market economy."15 Sachs was convinced that Poland had to take this "leap across the inst.i.tutional chasm" right away because, in addition to all its other problems, it was on the verge of entering hyperinflation. Once that happened, he said, it would be "fundamental breakdown . . . just pure, unmitigated disaster."16 He gave several one-on-one seminars explaining the plan to key Solidarity officials, some lasting up to four hours, and he also addressed Poland's elected officials as a group. Many of Solidarity's leaders didn't like Sachs's ideas-the movement had formed in a revolt against drastic price increases imposed by the Communists-and now Sachs was telling them to do the same on a far more sweeping scale. He argued that they could get away with it precisely because "Solidarity had a reservoir of trust of the public, which was absolutely phenomenal and critical."17 Solidarity's leaders hadn't planned to expend that trust on policies that would cause extreme pain to their rank and file, but the years spent in the underground, in jail and in exile had also alienated them from their base. As the Polish editor Przemyslaw Wielgosz explains, the top tier of the movement "became effectively cut off. . . their support came not from the factories and industrial plants, but the church."18 The leaders were also desperate for a quick fix, even if it was painful, and that was what Sachs was offering. "Will this work? That's what I want to know. Will this work?" demanded Adam Michnik, one of Solidarity's most celebrated intellectuals. Sachs did not waver: "This is good. This will work." The leaders were also desperate for a quick fix, even if it was painful, and that was what Sachs was offering. "Will this work? That's what I want to know. Will this work?" demanded Adam Michnik, one of Solidarity's most celebrated intellectuals. Sachs did not waver: "This is good. This will work."2719 Sachs often held up Bolivia as the model that Poland should emulate, so often that the Poles grew tired of hearing about the place. "I would love to see Bolivia," one Solidarity leader told a reporter at the time. "I'm sure it's very lovely, very exotic. I just don't want to see Bolivia here." here." Lech Walesa developed a particularly acute antipathy to Bolivia, as he admitted to Gon-zalo Sanchez de Lozada (Goni) when the two men met years later at a summit, when they were both presidents. "He came up to me," Goni recalled, "and said, Tve always wanted to meet a Bolivian, especially a Bolivian president, because they're always making us take this very bitter medicine, saying you have to do it because this is what the Bolivians did. Now I know you, you're not that bad a guy, but I sure used to hate you.' " Lech Walesa developed a particularly acute antipathy to Bolivia, as he admitted to Gon-zalo Sanchez de Lozada (Goni) when the two men met years later at a summit, when they were both presidents. "He came up to me," Goni recalled, "and said, Tve always wanted to meet a Bolivian, especially a Bolivian president, because they're always making us take this very bitter medicine, saying you have to do it because this is what the Bolivians did. Now I know you, you're not that bad a guy, but I sure used to hate you.' "20 In Sachs's talk of Bolivia, he failed to mention that in order to push through the shock therapy program, the government had imposed a state of emergency and, on two separate occasions, kidnapped and interned the union leadership -much as the Communist Party secret police had s.n.a.t.c.hed and imprisoned Solidarity's leaders under a state of emergency not so long before.

What was most persuasive, many now recall, was Sachs's promise that if they followed his harsh advice, Poland would cease being exceptional and become "normal" -as in "a normal European country." If Sachs was right, and they really could fast-forward to becoming a country like France or Germany simply by hacking off the structures of the old state, wasn't the pain worth it? Why take an incremental route to change that could well fail -or pioneer a new third way-when this insta-Europe version was right there, calling out? Sachs predicted that shock therapy would cause "momentary dislocations" as prices spiked. "But then they'll stabilize-people will know where they stand."21 He formed an alliance with Poland's newly appointed finance minister, Leszek Balcerowicz, an economist at the Main School of Planning and Statistics in Warsaw. Little was known of Balcerowicz's political leanings when he was appointed (all economists were officially socialist), but it would soon become clear that he saw himself as an honorary Chicago Boy, having pored over an illegal Polish edition of Friedman's Free to Choose. Free to Choose. It helped "to inspire me, and many others, to dream of a future of freedom during the darkest years of communist rule," Balcerowicz later explained. It helped "to inspire me, and many others, to dream of a future of freedom during the darkest years of communist rule," Balcerowicz later explained.22 Friedman's fundamentalist version of capitalism was a long way from what Walesa had been promising the country that summer. He was still insisting that Poland was going to find that more generous third way, which he described in an interview with Barbara Walters as "a mixture. ... It won't be capitalism. It will be a system that is better than capitalism, that will reject everything that is evil in capitalism."23 Many did argue that the sudden fix that Sachs and Balcerowicz were selling was a myth, that, rather than jolting Poland into health and normalcy, shock therapy would create an even bigger mess of poverty and deindustrial-ization than before. "This is a poor, weak country. We simply cannot take the shock," a leading doctor and health care advocate told the New Yorker New Yorker journalist Lawrence Weschler. journalist Lawrence Weschler.24 For three months after their historic victory at the polls and their abrupt transition from outlaws to lawmakers, the Solidarity inner circle debated, paced, yelled and chain-smoked, unable to decide what to do. Every day, the country fell deeper into economic crisis.

A Very Hesitant Embrace

On September 12, 1989, the Polish prime minister, Tadeusz Mazowiecki, rose before the first elected parliament. The Solidarity caucus had at last decided what it was going to do about the economy, but only a handful of people knew the final decision -was it the Sachs Plan, the Gorbachev gradualist route or Solidarity's platform of workers' cooperatives?

Mazowiecki was on the verge of announcing the verdict, but in the middle of his momentous speech, before he could confront the country's most burning question, something went terribly wrong. He started to sway, clasped the lectern and, according to one witness, "grew pale, gasped for breath and was heard to mutter under his breath, Tm not feeling too well.' "25 His aides whisked him out of the chamber, leaving the 415 deputies to trade rumors. Was it a heart attack? Had he been poisoned? By the Communists? By the Americans? His aides whisked him out of the chamber, leaving the 415 deputies to trade rumors. Was it a heart attack? Had he been poisoned? By the Communists? By the Americans?

One floor below, a team of doctors examined Mazowiecki and administered an electrocardiogram. It wasn't a heart attack or poison. The prime minister was simply suffering from "acute fatigue," from too little sleep and too much stress. After almost an hour of tense uncertainty, he reentered the parliamentary chamber, where he was greeted with thunderous applause. "Excuse me," said the bookish Mazowiecki. "The state of my health is the same as the state of the Polish economy."26 At long last, the verdict: the Polish economy would be treated for its own acute fatigue with shock therapy, a particularly radical course of it that would include "privatization of state industry, the creation of a stock exchange and capital markets, a convertible currency, and a shift from heavy industry to consumer goods production" as well as "budget cuts"-as fast as possible and all at once.27 If the dream of Solidarity began with Walesa's energetic vault over the steel fence in Gdansk, then Mazowiecki's exhaustedly succ.u.mbing to shock therapy represented the end of that dream. Finally, the decision came down to money. Solidarity's members did not decide that their vision for a cooperatively run economy was wrongheaded, but their leaders became convinced that all that mattered was winning relief from the Communist debts and immediately stabilizing the currency. As Henryk Wujec, one of Poland's leading advocates of cooperatives, put it at the time, "If we had enough time, we might even be able to pull it off. But we don't have time."28 Sachs, meanwhile, could deliver the money. He helped Poland negotiate an agreement with the IMF and secured some debt relief and $1 billion to stabilize the currency- but all of it, particularly the IMF funds, was strictly conditional on Solidarity's submitting to shock therapy. Sachs, meanwhile, could deliver the money. He helped Poland negotiate an agreement with the IMF and secured some debt relief and $1 billion to stabilize the currency- but all of it, particularly the IMF funds, was strictly conditional on Solidarity's submitting to shock therapy.

Poland became a textbook example of Friedman's crisis theory: the disorientation of rapid political change combined with the collective fear generated by an economic meltdown to make the promise of a quick and magical cure -however illusory-too seductive to turn down. Halina Bortnowska, a human rights activist, described the velocity of change in this period as "the difference between dog years and human years, the way we're living these days. . . you start witnessing these semi-psychotic reactions. You can no longer expect people to act in their own best interests when they're so disoriented they don't know-or no longer care-what those interests are."29 Balcerowicz, the finance minister, has since admitted that capitalizing on the emergency environment was a deliberate strategy-a way, like all shock tactics, to clear away the opposition. He explained that he was able to push through policies that were ant.i.thetical to the Solidarity vision in both content and form because Poland was in what he dubbed a period of "extraordinary politics." He described that condition as a short-lived window in which the rules of "normal politics" (consultation, discussion, debate) do not apply- in other words, a democracy-free pocket within a democracy.30 "Extraordinary politics," he said, "by definition is a period of very clear discontinuity in a country's history. It could be a period of very deep economic crisis, of a breakdown of the previous inst.i.tutional system, or of a liberation from external domination (or end of war). In Poland, all three phenomena converged in 1989."31 Because of those extraordinary circ.u.mstances, he was able to shunt aside due process and force "a radical acceleration of the legislative process" to pa.s.s the shock therapy package. Because of those extraordinary circ.u.mstances, he was able to shunt aside due process and force "a radical acceleration of the legislative process" to pa.s.s the shock therapy package.32 In the early nineties, Balcerowicz's theory about periods of "extraordinary politics" attracted considerable interest among Washington economists. And no wonder: only two months after Poland announced that it would accept shock therapy, something happened that would change the course of history and invest Poland's experiment with global significance. In November 1989, the Berlin Wall was joyously dismantled, the city was turned into a festival of possibility and the MTV flag was planted in the rubble, as if East Berlin were the face of the moon. Suddenly it seemed that the whole world was living the same kind of fast-forward existence as the Poles: the Soviet Union was on the verge of breaking apart, apartheid in South Africa seemed on its last legs, authoritarian regimes continued to crumble in Latin America, Eastern Europe and Asia, and long wars were coming to an end from Namibia to Lebanon. Everywhere, old regimes were collapsing, and the new ones rising in their place had yet to take shape.

Within a few years it seemed as if half the world was in a period of "extraordinary politics," or "in transition," as liberated countries came to be called in the nineties-suspended in an existential in-betweenness of past and future. According to Thomas Carothers, a leader in the U.S. government's so-called democracy-promotion apparatus, "in the first half of the 1990s. . . the set of'transitional countries' swelled dramatically, and nearly 100 countries (approximately 20 in Latin America, 25 in Eastern Europe and the former Soviet Union, 30 in sub-Saharan Africa, 10 in Asia, and 5 in the Middle East) were in some kind of dramatic transition from one model to another."33 Many were claiming that all of this flux, and the fall of real and metaphorical walls, would lead to an end of ideological orthodoxy. Freed from the polarizing effects of dueling superpowers, countries would finally be able to choose the best of both worlds-some hybrid of political freedom and economic security. As Gorbachev put it, "Many decades of being mesmerized by dogma, by a rule-book approach, have had their effect. Today we want to introduce a genuinely creative spirit."34 In Chicago School circles, such talk of mix-and-match ideologies was met with open contempt. Poland had clearly shown that this kind of chaotic transition opened up a window for decisive men, acting swiftly, to push through rapid change. Now was the moment to convert former Communist countries to pure Friedmanism, not some mongrel Keynesian compromise. The trick, as Friedman had said, was for Chicago School believers to be ready with their solutions when everyone else was still asking questions and regaining their bearings.

A sort of revival meeting for those who embraced this worldview was held in that eventful winter of 1989; the location, fittingly, was the University of Chicago. The occasion was a speech by Francis f.u.kuyama t.i.tled "Are We Approaching the End of History?"28 For f.u.kuyama, then a senior policy maker at the U.S. State Department, the strategy for advocates of unfettered capitalism was clear: don't debate with the third-way crowd; instead, preemptively declare victory. f.u.kuyama was convinced that there should be no abandonment of extremes, no best of both worlds, no splitting the difference. The collapse of Communism, he told his audience, was leading "not to an 'end of ideology' or a convergence between capitalism and socialism . . . but to an unabashed victory of economic and political liberalism." It was not ideology that had ended but "history as such." For f.u.kuyama, then a senior policy maker at the U.S. State Department, the strategy for advocates of unfettered capitalism was clear: don't debate with the third-way crowd; instead, preemptively declare victory. f.u.kuyama was convinced that there should be no abandonment of extremes, no best of both worlds, no splitting the difference. The collapse of Communism, he told his audience, was leading "not to an 'end of ideology' or a convergence between capitalism and socialism . . . but to an unabashed victory of economic and political liberalism." It was not ideology that had ended but "history as such."35 The talk was sponsored by John M. Olin, longtime funder of Milton Friedman's ideological crusade and bankroller of the boom in right-wing think tanks.36The synergy was fitting since f.u.kuyama was essentially restating Friedman's claim that free markets and free people are part of an inseparable project. f.u.kuyama took that thesis into bold new terrain, arguing that deregulated markets in the economic sphere, combined with liberal democracy in the political sphere, represented "the end point of mankind's ideological evolution and . . . final form of human government."37 Democracy and radical capitalism were fused not only with each other but also with modernity, progress and reform. Those who objected to the merger were not just wrong but "still in history," as f.u.kuyama put it, the equivalent of being left behind after the Rapture, since everyone else had already transcended to a celestial "posthistorical" plane. Democracy and radical capitalism were fused not only with each other but also with modernity, progress and reform. Those who objected to the merger were not just wrong but "still in history," as f.u.kuyama put it, the equivalent of being left behind after the Rapture, since everyone else had already transcended to a celestial "posthistorical" plane.38 The argument was a magnificent example of the democracy avoidance honed by the Chicago School. Much as the IMF had sneaked privatization and "free trade" into Latin America and Africa under cover of emergency "stabilization" programs, f.u.kuyama was now trying to smuggle this same highly contested agenda into the pro-democracy wave rising up from Warsaw to Manila. It was true, as f.u.kuyama noted, that there was an emerging and irrepressible consensus that all people have the right to govern themselves democratically, but only in the State Department's most vivid fantasies was that desire for democracy accompanied by citizens' clamoring for an economic system that would strip away job protections and cause ma.s.s layoffs.

If there was a genuine consensus about anything, it was that for people escaping both left-wing and right-wing dictatorships, democracy meant finally having a say in all major decisions rather than having somebody else's ideology imposed unilaterally and with force. In other words, the universal principle that f.u.kuyama identified as "the sovereignty of the people" included included the sovereignty of the people to choose how the wealth of their countries would be distributed, from the fate of state-owned companies to the level of funding for schools and hospitals. Around the world, citizens were ready to exercise their hard-won democratic powers to become the authors of their national destinies, at last. the sovereignty of the people to choose how the wealth of their countries would be distributed, from the fate of state-owned companies to the level of funding for schools and hospitals. Around the world, citizens were ready to exercise their hard-won democratic powers to become the authors of their national destinies, at last.

In 1989, history was taking an exhilarating turn, entering a period of genuine openness and possibility. So it was no coincidence that f.u.kuyama, from his perch at the State Department, chose precisely that moment to attempt to slam the history book shut. Nor was it a coincidence that the World Bank and the IMF chose that same volatile year to unveil the Washington Consensus -a clear effort to halt all discussion and debate about any economic ideas outside the free-market lockbox. These were democracy-containment strategies, designed to undercut the kind of unscripted self-determination that was, and always had been, the greatest single threat to the Chicago School crusade.

The Shock of Tiananmen Square

One place where f.u.kuyama's bold p.r.o.nouncement came in for early discrediting was China. f.u.kuyama's speech took place in February 1989; two months later, a pro-democracy movement exploded in Beijing, with ma.s.s protests and sit-ins in Tiananmen Square. f.u.kuyama had claimed that democratic and "free market reforms" were a twin process, impossible to pry apart. Yet in China, the government had done precisely that: it was pushing hard to deregulate wages and prices and expand the reach of the market-but it was fiercely determined to resist calls for elections and civil liberties. The demonstrators, on the other hand, demanded democracy, but many opposed the government's moves toward unregulated capitalism, a fact largely left out of the coverage of the movement in the Western press. In China, democracy and Chicago School economics were not proceeding hand in hand; they were on opposite sides of the barricades surrounding Tiananmen Square.

In the early 1980s, the Chinese government, then led by Deng Xiaoping, was obsessed with avoiding a repeat of what had just happened in Poland, where workers had been allowed to form an independent movement that challenged the party's monopoly hold on power. It was not that China's leaders were committed to protecting the state-owned factories and farm communes that formed the foundation of the Communist state. In fact, Deng was enthusiastically committed to converting to a corporate-based economy-so committed that, in 1980, his government invited Milton Friedman to come to China and tutor hundreds of top-level civil servants, professors and party economists in the fundamentals of free-market theory. "All were invited guests, who had to show a ticket of invitation to attend," Friedman recalled of his audiences in Beijing and Shanghai. His central message was "how much better ordinary people lived in capitalist than in communist countries."39 The example he held up was Hong Kong, a zone of pure capitalism that Friedman had long admired for its "dynamic, innovative character that has been produced by personal liberty, free trade, low taxes, and minimal government intervention." He claimed that Hong Kong, despite having no democracy, was freer than the United States, since its government partic.i.p.ated less in the economy. The example he held up was Hong Kong, a zone of pure capitalism that Friedman had long admired for its "dynamic, innovative character that has been produced by personal liberty, free trade, low taxes, and minimal government intervention." He claimed that Hong Kong, despite having no democracy, was freer than the United States, since its government partic.i.p.ated less in the economy.40 Friedman's definition of freedom, in which political freedoms were incidental, even unnecessary, compared with the freedom of unrestricted commerce, conformed nicely with the vision taking shape in the Chinese Politburo. The party wanted to open the economy to private ownership and consumerism while maintaining its own grip on power-a plan that ensured that once the a.s.sets 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. According to this version of "transition," the same people who controlled the state under Communism would control it under capitalism, while enjoying a substantial upgrade in lifestyle. The model the Chinese government intended to emulate was not the United States but something much closer to Chile under Pinochet: free markets combined with authoritarian political control, enforced by iron-fisted repression.

From the start, Deng clearly understood that repression would be crucial. Under Mao, the Chinese state had exerted brutal control over the people, dispensing with opponents and sending dissidents for reeducation. But Mao's repression took place in the name of the workers and against the bourgeoisie; now the party was going to launch its own counterrevolution and ask workers to give up many of their benefits and security so that a minority could collect huge profits. It was not going to be an easy task. So, in 1983, as Deng opened up the country to foreign investment and reduced protections for workers, he also ordered the creation of the 400,000-strong People's Armed Police, a new, roving riot squad charged with quashing all signs of "economic crimes" (i.e., strikes and protests). According to the China historian Maurice Meisner, "The People's Armed Police kept American helicopters and electric cattle prods in its a.r.s.enal." And "several units were sent to Poland for anti-riot training"-where they studied the tactics that had been used against Solidarity during Poland's period of martial law.41 Many of Deng's reforms were successful and popular-farmers had more control over their lives, and commerce returned to the cities. But in the late eighties, Deng began introducing measures that were distinctly unpopular, particularly among workers in the cities-price controls were lifted, sending prices soaring; job security was eliminated, creating waves of unemployment; and deep inequalities were opening up between the winners and losers in the new China. By 1988, the party was confronting a powerful backlash and was forced to reverse some of its price deregulation. Outrage was also mounting in the face of the party's defiant corruption and nepotism. Many Chinese citizens wanted more freedom in the market, but "reform" increasingly looked like code for party officials turning into business tyc.o.o.ns, as many illegally took posession of the a.s.sets they had previously managed as bureaucrats.

With the free-market experiment in peril, Milton Friedman was once again invited to pay a visit to China -much as the Chicago Boys and the piranhas had enlisted his help in 1975, when their program had sparked an internal revolt in Chile 42 42 A high-profile visit from the world-famous guru of capitalism was just the boost China's "reformers" needed. A high-profile visit from the world-famous guru of capitalism was just the boost China's "reformers" needed.

When Friedman and his wife, Rose, arrived in Shanghai in September 1988, they were dazzled by how quickly mainland China was beginning to look and feel like Hong Kong. Despite the rage simmering at the gra.s.s roots, everything they saw served to confirm "our faith in the power of free markets." Friedman described this moment as "the most hopeful period of the Chinese experiment."

In the presence of official state media, Friedman met for two hours with Zhao Ziyang, general secretary of the Communist Party, as well as with Jiang Zemin, then party secretary of the Shanghai Committee and the future Chinese president. Friedman's message to Jiang echoed the advice he had given to Pinochet when the Chilean project was on the skids: don't bow to the pressure and don't blink. "I emphasized the importance of privatization and free markets, and of liberalizing at one fell stroke," Friedman recalled. In a memo to the general secretary of the Communist Party, Friedman stressed that more, not less, shock therapy was needed. "China's initial steps of reform have been dramatically successful. China can make further dramatic progress by placing still further reliance on free private markets," free private markets,"43 Shortly after his return to the U.S., Friedman, remembering the heat he had taken for advising Pinochet, wrote "out of sheer devilry" a letter to the editor of a student newspaper, denouncing his critics for their double standards. He explained that he had just spent twelve days in China, where "I was mostly the guest of governmental ent.i.ties," and had met with Communist Party officials at the highest level. Yet these meetings had provoked no human rights outcry on American university campuses, Friedman pointed out. "Incidentally, I gave precisely the same advice to both Chile and China." He concluded by asking sarcastically, "Should I prepare myself for an avalanche of protests for having been willing to give advice to so evil a government?"44 A few months later, that devilish letter took on sinister overtones, as the Chinese government began to emulate many of Pinochet's most infamous tactics.

Friedman's trip did not have the desired results. The pictures in the official papers of the professor offering his blessing to party bureaucrats did not succeed in bringing the public onside. In subsequent months, protests grew more determined and radical. The most visible symbols of the opposition were the demonstrations by student strikers in Tiananmen Square. These historic protests were almost universally portrayed in the international media as a clash between modern, idealistic students who wanted Western-style democratic freedoms and old-guard authoritarians who wanted to protect the Communist state. Recently, another a.n.a.lysis of the meaning of Tiananmen has emerged, one that challenges the mainstream version while putting Friedmanism at the heart of the story. This alternative narrative is being advanced by, among others, w.a.n.g Hui, one of the organizers of the 1989 protests, and now a leading Chinese intellectual of what is known as China's "New Left." In his 2003 book, China's New Order, China's New Order, w.a.n.g explains that the protesters spanned a huge range of Chinese society-not just elite university students but also factory workers, small entrepreneurs and teachers. What ignited the protests, he recalls, was popular discontent in the face of Deng's "revolutionary" economic changes, which were lowering wages, raising prices and causing "a crisis of layoffs and unemployment." w.a.n.g explains that the protesters spanned a huge range of Chinese society-not just elite university students but also factory workers, small entrepreneurs and teachers. What ignited the protests, he recalls, was popular discontent in the face of Deng's "revolutionary" economic changes, which were lowering wages, raising prices and causing "a crisis of layoffs and unemployment."45 According to w.a.n.g, "These changes were the catalyst for the 1989 social mobilization." According to w.a.n.g, "These changes were the catalyst for the 1989 social mobilization."46 The demonstrations were not against economic reform per se; they were against the specific Friedmanite nature of the reforms-their speed, ruth-lessness and the fact that the process was highly antidemocratic. w.a.n.g says that the protesters' call for elections and free speech were intimately connected to this economic dissent. What drove the demand for democracy was the fact that the party was pushing through changes that were revolutionary in scope, entirely without popular consent. There was, he writes, "a general request for democratic means to supervise the fairness of the reform process and the reorganization of social benefits."47 These demands forced the Politburo to make a definite choice. The choice was not, as was so often claimed, between democracy and Communism, or "reform" versus the "old guard." It was a more complex calculation: Should the party bulldoze ahead with its free-market agenda, which it could do only by rolling over the bodies of the protesters? Or should it bow to the protesters' demands for democracy, cede its monopoly on power and risk a major setback to the economic project?

Some of the free-market reformers within the party, most notably General Secretary Zhao Ziyang, appeared willing to gamble on democracy, convinced that economic and political reform could still be compatible. More powerful elements in the party were not willing to take the risk. The verdict came down: the state would protect its economic "reform" program by crushing the demonstrators.

That was the clear message when, on May 20, 1989, the government of the People's Republic of China declared martial law. On June 3, the tanks of the People's Liberation Army rolled into the protests, shooting indiscriminately into the crowds. Soldiers stormed onto buses where student demonstrators were taking cover and beat them with sticks; more troops broke through the barricades protecting Tiananmen Square, where students had erected a G.o.ddess of Democracy statue, and rounded up the organizers. Similar crackdowns took place simultaneously across the country.

There will never be reliable estimates for how many people were killed and injured in those days. The party admits to hundreds, and eyewitness reports at the time put the number of dead at between two thousand and seven thousand and the number of injured as high as thirty thousand. The protests were followed by a national witch hunt against all regime critics and opponents. Some forty thousand were arrested, thousands were jailed and many-possibly hundreds-were executed. As in Latin America, the government reserved its harshest repression for the factory workers, who represented the most direct threat to deregulated capitalism. "Most of those arrested, and virtually all who were executed, were workers. With the obvious aim of terrorizing the population, it became a well-publicized policy to systematically subject arrested individuals to beatings and torture," writes Maurice Meisner.48 For the most part, the ma.s.sacre was covered in the Western press as another example of Communist brutality: just as Mao had wiped out his opponents during the Cultural Revolution, now Deng, "the Butcher of Beijing," crushed his critics under the watchful eye of Mao's giant portrait. A Wall Street Journal Wall Street Journal headline claimed that "China's Harsh Actions Threaten to Set Back [the] 10-Year Reform Drive"-as if Deng was an enemy of those reforms and not their most committed defender, determined to take them into bold new territory. headline claimed that "China's Harsh Actions Threaten to Set Back [the] 10-Year Reform Drive"-as if Deng was an enemy of those reforms and not their most committed defender, determined to take them into bold new territory.49 Five days after the b.l.o.o.d.y crackdown, Deng addressed the nation and made it perfectly clear that it wasn't Communism he was protecting with his crackdown, but capitalism. After dismissing the protesters as "a large quant.i.ty of the dregs of society," China's president reaffirmed the party's commitment to economic shock therapy. "In a word, this was a test, and we pa.s.sed," Deng said, adding, "Perhaps this bad thing will enable us to go ahead with reform and the open-door policy at a more steady, better, even a faster pace. . . . We haven't been wrong. There's nothing wrong with the four cardinal principles [of economic reform]. If there is anything amiss, it's that these principles haven't been thoroughly implemented."2950 Orville Sch.e.l.l, a China scholar and journalist, summarized Deng Xiao-ping's choice: "After the ma.s.sacre of 1989, he in effect said we will not stop economic reform; we will in effect halt political reform."51 For Deng and the rest of the Politburo, the free-market possibilities were now limitless. Just as Pinochet's terror had cleared the streets for revolutionary change, so Tiananmen paved the way for a radical transformation free from fear of rebellion. If life grew harder for peasants and workers, they would either have to accept it quietly or face the wrath of the army and the secret police. And so, with the public in a state of raw terror, Deng rammed through his most sweeping reforms yet.

Before Tiananmen, he had been forced to ease off some of the more painful measures; three months after the ma.s.sacre, he brought them back, and he implemented several of Friedman's other recommendations, including price deregulation. For w.a.n.g Hui, there is an obvious reason why "market reforms that had failed to be implemented in the late 1980s just happened to have been completed in the post-1989 environment"; the reason, he writes, "is that the violence of 1989 served to check the social upheaval brought about by this process, and the new pricing system finally took shape."52 The shock of the ma.s.sacre, in other words, made shock therapy possible. The shock of the ma.s.sacre, in other words, made shock therapy possible.

In the three years immediately following the bloodbath, China was cracked open to foreign investment, with special export zones constructed throughout the country. As he announced these new initiatives, Deng reminded the country that "if necessary, every possible means will be adopted to eliminate any turmoil in the future as soon as it has appeared. Martial law, or even more severe methods, may be introduced."3053 It was this wave of reforms that turned China into the sweatshop of the world, the preferred location for contract factories for virtually every multinational on the planet. No country offered more lucrative conditions than China: low taxes and tariffs, corruptible officials and, most of all, a plentiful low-wage workforce that, for many years, would be unwilling to risk demanding decent salaries or the most basic workplace protections for fear of the most violent reprisals.

For foreign investors and the party, it has been a win-win arrangement. According to a 2006 study, 90 percent of China's billionaires (calculated in Chinese yuan) are the children of Communist Party officials. Roughly twenty-nine hundred of these party scions-known as "the princelings" - control $260 billion.54It is a mirror of the corporatist state first pioneered in Chile under Pinochet: a revolving door between corporate and political elites who combine their power to eliminate workers as an organized political force. Today, this collaborative arrangement can be seen in the way that foreign multinational media and technology companies help the Chinese state to spy on its citizens, and to make sure that when students do Web searches on phrases like "Tiananmen Square Ma.s.sacre," or even "democracy," no doc.u.ments turn up. "The creation of today's market society was not the result of a sequence of spontaneous events," writes w.a.n.g Hui, "but rather of state interference and violence."55 One of the truths revealed by Tiananmen was the stark similarity between the tactics of authoritarian Communism and Chicago School capitalism-a shared willingness to disappear opponents, to blank the slate of all resistance and begin anew.

Despite the fact that the ma.s.sacre happened just months after he had encouraged Chinese officials to push forward with painful and unpopular free-market policies, Friedman never did face "an avalanche of protests for having been willing to give advice to so evil a government." And as usual, he saw no connection between the advice he had given and the violence required to enforce it. While condemning China's use of repression, Friedman continued to hold it up as an example of "the efficacy of free-market arrangements in promoting both prosperity and freedom."