How not to criticize neoliberalism

Is Klein's The Shock Doctrine one of the best books of the 21st century?

I’m afraid the central message of The Shock Doctrine remains just as influential as it was ~20 years ago when it first came out. If you hate neoliberalism, as many anti-capitalist leftists (and an increasing number of right-wingers) instinctively do, then you’ll find yourself nodding along as you read Naomi Klein’s book.

After all, no less a person than the Nobel laureate Joseph Stiglitz had glowing things to say about it (although he was also critical of parts of it). Stiglitz praised it for its “rich description of political machinations,” and underscored that “the case against these policies [i.e., neoliberalism] is even stronger than the one Klein makes.” In 2019, The Guardian ranked it as the 18th best book written since 2000. Multiple newspapers had crowned it as one of the best books of 2007.

The unfortunate thing is that the book is not serious scholarship in the academic, scientific sense of the word. (Ironically, Stiglitz himself agrees and says the same.) There’s simply too much quasi-conspiratorial thinking in it, and the book’s central metaphor collapses under the slightest of scrutiny. The book also includes a seemingly malicious distortion of Milton Friedman’s actual views and is almost completely innocent of any relevant, systematic statistics that would help us understand neoliberalism’s actual empirical record.

What do you mean, “shock doctrine?”

I read and liked the book as a student back in 2010 or 2011. Before rereading it a couple of years ago and going through a bunch of positive and critical reviews, the only thing I remembered (aside from neoliberalism and the Chicago Boys being very bad things) was the disturbing story of Ewen Cameron, with which Klein opens the book. Cameron was a psychiatrist at McGill University who conducted horrific CIA-funded experiments using electroconvulsive therapy to try and wipe patients' minds clean. He believed he could reduce patients to a blank slate and then rebuild their personalities from scratch.

Now, I kid you not, Klein uses this story to analogize with “neoliberal” economic shock therapy. Get it? Psychiatric shock therapy … Economic shock therapy? Klein introduces us to Milton Friedman and the Chicago School, who supposedly applied the same logic that Cameron used on individuals to entire societies. Economic shock therapy (rapid market liberalization) allegedly operates on the same principle as psychiatric shock therapy. That is, you should disorient the patient (or population) through trauma, and while they're reeling, impose radical changes they'd otherwise resist.

The big sticking point here is that there’s virtually no connection between the two phenomena. The economic “shock” concept refers to implementing multiple reforms quickly and simultaneously instead of gradually, which has to do with sequencing and speed, not with any deliberate, villainous project of disorienting populations through trauma so they accept what they never would have otherwise. When discussing how non-capitalist, socialist societies in the second half of the 20th century should carry out their transition, the choice was typically between “shock therapy” and “gradualism.” Namely, what’s the speed and extent of reforms that should happen with respect to privatization, abolishing state control over the economy, and so on. What does Cameron’s unethical psychiatric shock therapy have to do with this, except for the words “shock” and “therapy?”

(As one skeptical reviewer put it, Klein's method almost amounts to: “Hitler had the autobahn built. The autobahn allowed drivers to finally race where they wanted to go. Hitler crafted what he thought of as the final solution to a race problem. So you see, highway systems are part and parcel of genocide.”)

The tortured analogy does a lot of work in The Shock Doctrine. For instance, it allows Klein to associate market reform with torture (see what I did there?) throughout the book, creating a constant emotional undertone of violence and coercion even when discussing, say, price liberalization in Poland. That’s clearly an unfair move. And the rhetorical trick is made even more bizarre by the fact that empirical research explicitly finds globalization and pro-market reforms to be positively associated with physical integrity rights (so, less torture)!¹ In another article, Carden and Lawson explicitly test the Klein thesis and find it lacking: “Our results suggest that human rights abuses reduce rather than increase the pace at which countries adopt liberal economic institutions.”

The funny thing in all this is that so-called exogenous shocks do actually play a crucial role in social change, though there’s usually no conspiracy behind them! It’s a standard social-science, game-theoretic insight that a given social order is in equilibrium, which is a state where no social actor has an incentive to deviate from what they’re doing. This is why social orders are so persistent and why big sudden social change (for better or worse) typically doesn’t happen. (As an aside, yes, it’s not because of false consciousness that the status quo is perpetuated.) So, to disrupt the equilibrium and nudge society from one state to another (like from feudalism to capitalism or dictatorship to democracy or no workers’ rights to workers’ rights), there usually has to be a preceding exogenous shock, like a pandemic, natural disaster, war, an ally’s defeat in war, or what have you. Such shocks work in favor of social change because they can suddenly shift the distribution of power, temporarily disempower (or further empower) elites, and make coordination and collective action easier for the subordinated classes, all of which can affect change.

Klein is apparently oblivious to these basic theoretical problems/insights in social science, so when she (correctly) observes that reforms and social change typically happen only after various sudden shocks, she (incorrectly) infers that this is highly unusual and must be due to conspiracies intended to “shock” the social audience into compliance with the new order. Just like Cameron intentionally “shocked” his patients to be able to change them.

Poor ol’ Milton

I’m not a Friedmanite (look to The Mont Pelerin Review for that), and I think Chicago-style price theory is way overhyped by its proponents; though it also tends to be misunderstood or unfairly maligned by its most vociferous detractors. But boy, oh boy, does Klein do Friedman dirty in this book. It’d be easy to criticize his actual views and ideological biases fairly, at least from where I’m sitting, but that wouldn’t be nearly as juicy as what Klein had in store, apparently.

She presents Friedman as a sinister figure whose ideas provided intellectual cover for dictators and whose followers deliberately exploited crises to impose their agenda on unwilling populations. And she is able to do that only by removing all context from a few carefully mined quotes and by reading him in the least charitable way possible, while also ignoring his explicit statements to the contrary. I’m drawing here on Johan Norberg’s thorough review of the issue.

For instance, Klein quotes Friedman discussing “psychological reactions” to economic policy in a way designed to suggest he wanted to disorient and shock people. But the full quotation shows the exact opposite. Friedman wrote that if a government implements rapid reform, “it should be announced publicly in great detail ... The more fully the public is informed, the more will its reactions facilitate the adjustment.”

She implies throughout the book that Friedman supported the Iraq War, which is her flagship example of disaster capitalism. True, she never outright says he did so, but the implication is very clear and strong (see Norberg for details). The problem for Klein’s narrative is that Friedman explicitly opposed it, but you’d never know by just reading her book:

I was opposed to going into Iraq from the beginning. I think it was a mistake, for the simple reason that I do not believe the United States ought to be involved in aggression.

Klein also emphasizes his connections to Pinochet's Chile, where Latin American economists trained at Chicago helped implement market reforms under a brutal dictatorship. But she largely omits that Friedman explicitly criticized the regime's authoritarianism and consistently argued that economic freedom is specifically desirable in Chile not in itself but because it would (probabilistically) lead to political freedom, which it eventually did. Or as he put it in 1982, being mindful of bi-directional causality:

I have long argued that economic freedom is a necessary but not sufficient condition for political freedom. I have become persuaded that this generalization, while true, is misleading unless accompanied by the proposition that political freedom in turn is a necessary condition for the long-term maintenance of economic freedom.

Whatever you think of Friedman’s argument, the case that he was enthusiastic (or even just supportive) of the regime and blind to its human rights abuses is weak. Here are a few other Friedman statements:

I approve of none of these authoritarian regimes—neither the Communist regimes of Russia and Yugoslavia nor the military juntas of Chile and Brazil... I do not regard visiting any of them as an endorsement.

[Pinochet’s regime is] very far indeed from a free society... an authoritarian society which denies the liberties and freedoms of the people …

I have nothing good to say about the political regime that Pinochet imposed. It was a terrible political regime.

If anyone can be blamed, it’s Friedrich Hayek! He was supportive of the regime and provided ideological justification for it. Also, in contrast to Friedman, “Hayek chose to remain silent about the human rights abuses that took place under the junta.” Perhaps the most damning (and clearly wrong) sentiment Hayek expressed was the following:

I have not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende.

The historian Jennifer Burns notes the contrast between the two men in her 2023 archival biography of Friedman:

Believing Friedman could influence Pinochet, human rights groups convinced him to send several letters on behalf of regime prisoners. In these petitions, Friedman began to make a stronger connection between economic and political freedom, calling them “indivisible” in a letter to Pinochet. For most of his career, Friedman had been at pains to emphasize that economic freedom was essential to political freedom; indeed, it was freedom itself. This was largely because he believed American liberals ignored or denigrated economic freedom. But now he understood that exclusively emphasizing economic freedom could be read as accepting political repression. Friedman started to recalibrate his public statements to clarify there was no acceptable trade-off between the two.

Watching other conservatives react to Chile may have sharpened his thinking. Hayek, for example, visited Chile in 1977 and 1981. Here he wandered close to an endorsement of the regime, telling an interviewer, ‘I personally prefer a liberal dictator to a democratic government lacking liberalism.’ Hayek’s skepticism about unlimited democracy was well established in his political writings but took on a darker tone when publicly proclaimed from inside a repressive state. He followed up with several ill-considered defenses of Pinochet in major European newspapers.

Of course, there’s much more that could be said. Check out the recent archival research by Edwards and Montes, appearing in the Journal of the History of Economic Thought, and an earlier paper by Caldwell and Montes. Meadowcroft and Ruger (Review of Political Economy) also have an instructive piece.

The message apparently hasn’t been received on the anti-neoliberal left. Even as late as 2023, Jessica Whyte repeated the mistaken charge in a Jacobin piece titled “Neoliberal Economists Like Milton Friedman Cheered on Augusto Pinochet’s Dictatorship.” The Klein legacy is strong.

What of the actual empirical record on neoliberalism?

The relationship between economic freedom (= small government size, rule of law and property rights, control of inflation, free trade, modest regulation) and economic outcomes has been extensively studied in the scientific literature. A recent meta-analysis in the Southern Economic Journal examined 696 estimates from 54 studies on economic freedom (mostly measured with the Fraser Institute’s EFW) and growth, 386 estimates from 23 studies on freedom and income, and 343 estimates from 32 studies on freedom and investment. It finds that economic freedom is positively associated with growth, income, and investment.

Critics sometimes dismiss such findings by claiming the Economic Freedom Index (EFW) is ideologically constructed to produce favorable results. This is just clearly wrong. First, in contrast to Heritage’s index, the EFW data come from recognized international institutions, not Fraser Institute’s ideological in-house assessments. Second, the largest literature review (2022) finds only about half of studies associate economic freedom with "positive" social outcomes - nearly 45% find mixed or null results, with effects varying by context, country, and time period. If the index were rigged, you'd expect a much higher hit rate.

Figure from Lawson, 2022.

Interestingly and again tellingly, the literature (my own research included) often finds that different components of economic freedom have different effects/correlates. Free trade (or trade openness), rule of law/property rights, sound monetary policy, and a non-restrictive business climate tend to produce good outcomes, while a very minimal state and certain weak labor protections tend not to. This nuance is exactly what you'd expect from a real complex phenomenon being measured honestly, and exactly what you wouldn't expect from an ideological exercise. (If for some reason you don’t like the economic freedom index or its individual components as measures of neoliberalism, you can switch to globalization indexes; the same overall positive or leaning positive image emerges there, while there are more mixed results when looking at components.)

But wait, you might ask, why am I defending neoliberalism then, if the literature is actually somewhat mixed when taking broad account of its social correlates? Well, I’m not defending it! As I’ve written time and again, I’m not a neoliberal. Some of its dimensions seem to work well, others not so much. But what I am trying to do here is counter Klein on at least two counts.

First, instead of presenting quantitative research (or summarizing studies), she opts to narratively condemn it, while bringing no systematic evidence to bear. That’s deplorable, especially in light of how influential the book was and how strongly its message resonates with people to this day. Second, if she were to present evidence, neoliberalism would look fairly glowingly as far as economic development is concerned, and at least mixed as far as broad social correlates go. (Actually, wholly or mostly positive in some cases, such as absolute poverty, peace, and democracy.)

There’s more. Where Klein deigns to mention numbers, she claims that market liberalization creates a “permanent underclass” comprising “25 to 60 percent” of the population (words in quotes are hers). Two issues here. When critics such as Norberg examined the source, they found Klein had self-selected and combined different poverty measures from different countries in different years (that is, just one or two years, no timeseries) using different methodologies, sometimes even just relying on politicians’ speeches and newspapers, then presented the range as a coherent finding. Norberg confronted her with this, and she essentially acknowledged that the figure was more of an impressionistic composite than rigorous measurement.

The other issue with her claim is that most research shows that when economic freedom reforms are carried out, absolute poverty tends to drop, not sharply and permanently increase. There’s even some evidence this happens with relative poverty, as my co-author and I found recently, but overall the result and studies are mixed. I don’t know what Klein means with an “underclass”, but neoliberalism being followed by overall economic growth increasing and absolute poverty decreasing, while studies are mixed on what happens to relative poverty and inequality, doesn’t scream to me that the majority of population becomes some sort of a permanent underclass, whatever one might mean by that.

By the way, focusing specifically on post-communist countries, such as Poland, which is mentioned a lot by Klein, “shock therapy” seems to have worked in Eastern Europe over the medium and long term (and definitely not created any kind of disaster capitalism). A 2024 study by Kantorowicz and Spruk in The World Economy used the synthetic control method to construct counterfactual scenarios for 24 transition economies from 1980-2016. Their finding (see figure) is that sustained “big bang” reforms (shock therapy) were the most effective approach, while gradualist and abortive approaches produced “a permanent breakdown of the growth trajectories relative to the estimated counterfactuals.” I played around with the data myself and couldn’t really replicate this finding with a different operationalization of “shock therapy” and “gradualism,” so I’m not pushing the positive result on you. But I am trying to say that things are incredibly more complex than what is suggested by Klein or her followers.

Populist critiques of neoliberalism are a disaster

Neoliberalism is a serious, complicated, and problematic (as well as beneficial) social phenomenon in some key respects, which makes it very worthy of careful analysis; here’s a broad and quantitatively simplistic paper of mine that tries to do just that. Dark sides exist and should be examined. But The Shock Doctrine isn’t that examination, not by a long shot. It’s a vociferous polemic that substitutes rhetorical heat for empirical light with seeming relish.

If you want to understand what market reforms actually did, read the decades upon decades worth of empirical literature that’s accumulated and hasn’t been read by hardly anybody while Klein was busy selling millions of copies.

1. Though see the famous Abouharb and Cingranelli book, which focuses on the IMF and argues the opposite. See also Eriksen and De Soysa’s nuanced response to their studies.