Book Review: The Shock Doctrine

The book describes the Nobel laureate Milton Friedman’s free-market capitalism as one of the powers that caused economic, political mayhem and tragedy all over the world. The detail and backstories of the events that Naomi provided is very convincing and there are lots of lessons to be learned from the history and perspective that she have uncovered. The book covers the economic crisis that happened during globalization, and points to the “free-market” ideology as one of the main accomplices for either the global enterprises or local corrupt government officials on exacerbating or even creating these economic disasters.

The brilliancy of this work is that it recorded all sorts of distorted incentive structures that were being used all across the world that was carried under the name of “free-market”. We see how these structures were set up to control how the funds flow and pour resources into the few rather than the public.

While the author points at the free-market capitalism ideology itself as the culprit, my understanding is that the ideology is being used as a tool to help cover the economic pillaging that benefits the global enterprises and the few local powers. She seem to think using “Shock” to introduce new structures into a system is inherently bad and all such attempts shall be reprimanded - which I don’t necessarily agree with. Shock does facilitate the introduction of a new system, as she mentioned in the book:

“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.”

How I see it, is that unfortunately most human beings are not selfless. When wielding this sort of power and is in the position to construct a new structure, most likely they will institutionalized a structure that benefits themselves as much as possible, thus creating an extractive economic environment. And when the global enterprises and the US understood this phenomenon, they used it to push their economic and political agenda, thus exacerbating and creating disasters across the whole world.

In Naomi’s writing, she seems to taint the means to push policies with the consequences.

It was in 1982 that Milton Friedman wrote the highly influential passage that best summarizes the shock doctrine. “ Only a crisis-actual or percieved-produces real change. When the crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.

IMO, Friedman’s observation of human society is quite accurate and the idea he presented can be applied to anyone who wants to impact the society, in whichever way. By no means any policy can be pushed without its idea being well formulated and becomes an idea that lying around for the policy implementers.

My main take aways from the book are as follow:

• News reports even by the most reputable media can often be incorrect. This is not necessarily because they are untruthful, but is because that they lack the technical knowledge on how to assess the results. Hence, their reporting are easily affected by the public opinion by the time. And public opinions are often shaped by key opinion leader at the time. In this case, it was Friedman and his students. I have observed similar things happening in the web3 space and it is very interesting to see this happening in other fields as well.
• It is dangerous to have beliefs. As we always say: “Verify, not trust.” In the case of this book, the dangerous belief was “free market is always good, privatization everything is the way”.
• As people: We need to be careful of the structural changes in our political system during crisis. As general people will tend to be more agreeable and supportive of the government, selfish and extractive structure could be set up and there might be no return.
• As policy promoter & implementer: Shock is helpful in creating an environment that is flexible, but it is extremely dangerous as they could take in anything. When there is no reasonable resistance during implementation of a large system, there will be extraction. This could be different in much smaller scale, but I agree that being not suitable for big systems.
• As policy promoter & implementer: To make policy changes, one should always be present and advocate. Have someone who is advocating for the policy you support is key. Technical people have the tendency to assume people will “obviously” go for the optimal solution, but this is not the case. Optimal solution needs to be promoted and marketed so that it gets accepted.
• As policy promoter & implementer: When you have a chance to implement your own policy, be very delicate and thoughtful. Know that there are lots of unknowns and one cannot just believe your policy is the best.
• As policy promoter & implementer: If the implementation failed miserably, don’t look for excuses like “it was not followed thoroughly”, rather, assess whether the method itself is just impossible to “follow thoroughly” & assess if it has created better results even if it was not followed thoroughly. For a large system, it is almost guaranteed that the details will not be followed, so the changes that are favourable should be improving the situation even when it is slightly derailed. We are in for “aim for the stars, land on the moon”, not “aim for the stars, explosion in the sea”.
• As policy promoter & implementer: Always think about incentives. Create an environment where the good incentives can thrive.
• As negotiator: Sometimes the main target that everyone is talking about is not really that important. There are subtle terms in the contract that can gain real control over the situation. Identify the key incentive structure in the system that you’re working with, and defend on those fronts. Do not just follow the public opinion. (Africa case)