Milton Friedman set about implementing a new economic model, one of deregulation and the removal of restrictions to the open market.
South American countries had been coerced into adopting these disastrous policies but now the economic virus was spreading to the United States and Europe.
Thatcherism And Reaganism
Despite the ultimate failure of free market economics in South America, Margaret Thatcher, the Prime Minister of Great Britain, was an avid fan of deregulation. Coincidentally, this philosophy was also shared across the Atlantic by U.S. President, Ronald Reagan.
Thatcher employed the policies of Friedman and was a keen supporter of his fellow economist and mentor, Friedrick Von Hayek.
Friedman, according to the author, Naomi Klein, encouraged Thatcher to adopt the Chilean shock policy. However, another crisis would intervene giving the de-regulators the perfect opportunity to impose dubious reforms. The Falklands War was a godsend to free markets as patriotism overcame the British public.
Reagan, like Thatcher, was a keen advocate of de-regulated free market capitalism. He brought Friedman’s economic model into practice and in doing so widened the gap between the rich and poor in what was already a very unequal society.
Deregulation’s Impact On Britain
Thatcher’s policies caused widespread chaos in Britain. The streets were full of rioters and one miner’s strike saw in excess of 20,000 people injured. One year later, Thatcher brought her plans into force – selling off the steel, water, telephone, gas, coal, electricity, airline and oil industries. In 1986 the financial services were completely deregulated.
Thatcher’s polices succeeded in widening the gap enormously between the rich and the poor. Before Margaret Thatcher, company CEO’s earned ten times what the average worker took home. This shot up to over 100 times by 1986.
Likewise in the United States prior to Reagan, CEOs earned 43 times the average industrial wage however after Reagan this soared to over 400 times.
Yeltsin’s Destruction Of Russia
Boris Yeltsin became the Russian President after Mikhail Gorbachev was placed under house arrest. Yeltsin set about bringing deregulation and a free market to Russia plunging the country into chaos and allowing political allies to acquire vast wealth from public resources. State industries were sold off at ridiculously low prices.
In 1992 one-third of Russians lived below the poverty line and 40 per cent less food was consumed on average compared to the year previously. To make matters worse, the country, and Moscow in particular, had become completely lawless and the vast majority of the public were opposed to what they felt was interference from The Chicago Boys’ school of economics.
Yeltsin’s Corruption Receives US-Backing
The Russian parliament sought to repeal the special powers that Yeltsin had been granted and the Russian President declared a State of Emergency. Despite the Russian Supreme Court ruling that this State of Emergency was illegal, Yeltsin abolished the Russian parliament.
The United States, similar to their position in Chile and Argentina (see The Legacy Of Milton Friedman part 1), condoned the abolition of Russia’s parliament stating ‘The United States does not easily support the suspension of parliaments but these are extraordinary times.‘ Somehow deregulated open market capitalism had falsely become intertwined with democracy and freedom. A notion that is not backed by any evidence whatsoever.
Yeltsin sold off more state companies to oligarchs such as Roman Abromovitch. The number of Russians living in poverty increased dramatically by 72 million people while at the same time Moscow now had more billionaires than any other country in the world.
Rumsfield’s Privatisation Of The US Army
September 11th provided the ideal conditions to push more privatisation through in the United States. Homeland Security became one of the largest industries in America. With over 130 billion spent on defense, the United States now had the perfect abstract enemy to engage with as the ‘War on Terror’ was launched. Like what had gone before in South America, deregulation and the free markets now had the perfect opportunity.
The US invasion of Iraq saw more of The Chicago Boys economic policies being introduced as over half a million government workers lost their jobs. Instead of boosting Iraqi industries, most of the money went to American corporations.
- Creative Associates International received $100 million to draft textbooks and set up a new Iraqi curriculum.
- Bearing Point was awarded contracts worth nearly a quarter of a billion.
- RTI International received $466 million to give advice on how to bring democracy to Iraq. Halliburton was awarded $20 billion in contracts.
- Parsons were given $186 million to build 142 health clinics, only six were actually built.
- Even the Iraqi currency was not printed in Iraq, instead being outsourced to a private firm.
The Private Legacy On Iraq
As more and more Iraqis saw what was happening to their country they initially started protesting. But when it became clear that this was ineffective – many joined the armed resistance and violence became commonplace. This has created an ever-growing breeding ground for terrorism that has world-wide consequences.
The privatisation of the US occupation of Iraq also had terrible direct consequences for Iraqi citizens. According to the Red Cross, 70 to 80 per cent of arrests on citizens were mistakes compounding an already apparent mistrust of the occupiers. Blackwater’s assumed command of US marines also led to hundreds of needless casualties.
The Deeply Flawed Euro Experiment
Heralded as one of the great achievements of Europe, the Euro’s flaws have now been exposed for all to see.
Countries that are members of the EU are unable to engage in individual quantitative easing, which is a process where imaginary money in the form of bonds are used to free up extra supply in the banks. So what may suit the big players such as Germany may not be suitable to smaller countries such as Greece or Ireland.
Likewise, because the Euro operates on a single currency, extra money cannot be printed to suit individual countries. Although this is a dangerous course of action for any country to take as it could result in hyperinflation such as what was experienced in Weimar Germany in which wheelbarrow loads of money were not enough to purchase groceries. This led to frenzy and panic and was one of the main reasons why Adolf Hitler and the Nazi party came to power.
Because the Euro operates through one central bank, the European Central Bank (ECB) in Frankfurt Germany. Euro nations are unable to set interest rates to suit their own countries.
Finally, because countries in the Euro-zone use the single currency – the option of devaluing their own currency is not available.
Realising The Mistake Of Deregulation
Through the implementation of a flawed economic philosophy and a simple but false method of linking together democracy with the open market and deregulation – the world bought into an unworkable financial system. A system which was by its very nature doomed to failure and a system which had failed in every country it was implemented.
Now John Maynard Keynes’s theory of ‘boom and bust’ capitalism, which relies on strong fiscal policy dictated by government, is accepted as the only method for dealing with the current financial crisis.
The Chicago Boy’s model has now been thrown unto the scrap heap as countries try to recover and claw their way back from the chasm that the previous policy have led them into.
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You can read Yellow Magpie’s Milton Friedman: The Man Whose Philosophy Brought The World To Its Knees (Part One) and The Legacy Of Milton Friedman: A Bankrupt Ireland (Part 3) here.
You can obtain Naomi Klein’s fantastic book The Shock Doctrine, (which this article derives many of its facts from) here from Amazon.
For people living in Ireland or the United Kingdom you can access The Shock Doctrine here.
For those living in Canada you can obtain The Shock Doctrine from here.
For Germany: The Shock Doctrine.
For France: The Shock Doctrine.