On Naomi Klein, Russia, and Corruption

Naomi Klein is the shining star of the anti-corporate, anti-globalization progressive movement. Her latest book, The Shock Doctrine, is a worldwide best-seller, and she has attracted much interest of late now that her crusade against Milton Friedman and his laissez-faire economic policies seems to be vindicated by the recent financial meltdown. I recommend reading Larissa MacFarquhar’s profile of Klein in The New Yorker.

But despite being a card-carrying liberal, I am no fan of Naomi Klein.

Klein’s basic thesis in The Shock Doctrine is this: business interests (corporations) team up with the political powers that be (Washington, IMF, World Bank) to push through free market economic policies (deregulation and privatization) whenever there is a shock event (natural disaster, currency devaluation, regime change, terrorist attack). These policies end up enriching the few at the expense of the many.

One of the case-studies Klein cites in support of her thesis is the transition towards a market economy that took place in Russian in the early 1990s following the demise of the Soviet Union. Jeffrey Sachs, one of the Western economists who advised the Russian authorities at the time, labeled his economic policy suggestions (most conveniently for Klein) as “shock therapy.” Klein has this to say about the Western-led reorganization of the Russian economy:

Beginning in 1990, the [World] Bank led the charge for the former Soviet Union to impose immediately what it called "radical reform." When Mikhail Gorbachev refused to go along, Yeltsin stepped up. … After [Yeltsin] ordered army tanks to open fire on demonstrators in October 1993, killing hundreds and leaving the Parliament blackened by flames, the stage was set for the fire-sale privatizations of Russia's most precious state assets to the so-called oligarchs.

Russia is far from unique: From Chile's dictator Augusto Pinochet, who accumulated more than 125 bank accounts while building the first neoliberal state, to Argentine President Carlos Menem, who drove a bright red Ferrari Testarossa while he liquidated his country, to Iraq's "missing billions" today, there is, in every country, a class of ambitious, bloody-minded politicians who are willing to act as Western subcontractors. They will take a fee, and that fee is called corruption--the silent but ever-present partner in the crusade to privatize the developing world….In fact, corruption was embedded in the very idea of shock therapy.

This analysis is all well and good. Klein deserves commendation for “following the money” and documenting, in her book, the symbiotic relationship between big business and corrupt politicians.

Interestingly, it seems Vladimir Putin has been reading The Shock Doctrine, or more likely, he just happens to share Klein’s feelings about the post-Soviet economic upheaval in Russia. Since he came to power, Putin has been trying to institute a kind of economic justice in Russia by taking back—by hook or crook—a good part of what was stolen by the oligarchs in the 1990s. The most well known example of this re-nationalization was the takeover of Mikhail Khodorkovsky’s oil company, Yukos, by the state-run energy giant Gazprom. Khodorkovsky now languished in a prison in Siberia. More recently, Putin has been implementing a kind of reverse shock doctrine, by which he uses a crisis to turn Russia away from the Friedmanite model and towards a more state-controlled economic environment. The NYTimes reported that he is using the smokescreen of the current financial meltdown, together with the “natural disaster” of a giant sink hole created by a collapsed mine, to move in on an oligarch-owned mining company, Uralkali. From the Times:

The Kremlin seems to be capitalizing on the economic crisis, exploiting the opportunity to establish more control over financially weakened industries that it has long coveted, particularly those in natural resources.

“We will put capital directly into major companies, in cases when it would be beneficial to the state and eventually to the taxpayer, and in those enterprises that are the basis of the economy of the Russian Federation,” Mr. Putin said in a television appearance on Thursday. “We do not exclude that these tools may be used in a large-scale way.”

Go get ‘em, Vladimir! Take down those oligarchs! Naomi Klein approves … or does she?

I wonder how Klein feels about Putin’s attempts to even the score with the oligarchs who made off like bandits in the 1990s. I suspect that she, along with many of her progressive fans, might not be all that supportive of Mr. Putin. Perhaps she feels similar to the Russians cited in the Times article:

Russians undoubtedly have ambivalent feelings about oligarchs. They tend to resent the oligarchs’ wealth, believing that it was accumulated through underhanded means in the 1990s. But they also worry that government officials want to seize these assets for their own venal purposes, and that they will end up mismanaging them, just as in Soviet times.

This completely justified skepticism of Putin-style economic justice points towards a problem with the world-view of many progressives in the Naomi Klein camp. Namely, progressives are too reluctant to admit that corruption and bad behavior is not limited to capitalist actors alone, but is built into any governmental system. They are too quick to point the finger at corporations, and unwilling to see corruption as not simply self-generated by evil-doing rich guys but as a part of the governing process. Thinking of Putin’s Russia, it is easier to see that nationalization carries its own set of problems and its own inherent corruption, and that nationalization is not necessarily the best way to improve upon a corrupt privatized system.

With this in mind, Klein’s recent call to nationalize ExxonMobil, a very Putin-esque move, is terribly misguided. In her rush to punish the corrupting corporate actors, Klein offers up a solution that will simply shift the opportunity for theft from private actors (ExxonMobil) to public actors (bureaucrats). If all this makes me sound like a libertarian, that’s as it should be. Libertarians rightly see “nationalization” as a euphemism, in many instances, for the state stealing money from capitalists, just as progressives rightly see “privatization” as a euphemism, in many instances, for capitalists stealing money from the state.

The constant struggle towards better governance is to limit the abuse of the system—both by state actors and by corporate actors. That means nationalizing ExxonMobil is a bad idea . But it also means steps should be taken to limit the influence of corporate money in politics. Naomi Klein is half right: Milton Freidman-style economic policies are, indeed, fundamentally unjust. But pointing the finger only at corporations and saying the solution is to nationalize ExxonMobil is a flawed analysis. Illinois Gov. Bagojevich needed no prodding from any corporation to incentivize him to try to sell Obama’s Senate seat.

When Klein throws up her hands in disgust over the corruption built into the idea of “shock therapy,” the proper response is: “What? There’s gambling at Rick’s casino? Shocking.” Corruption will always be with us. The task is to minimize it.