Several doctrines for the same shock

23 April 2011 by Eric Toussaint

During the first phase of the world economic crisis (2007-2009), the governments of the countries most affected by the crisis, starting with the United States, have taken strong measures, drawing upon lessons of the first months following the Wall Street crash in October 1929. Back then, the lack of State intervention to support both the financial system and demand led to very grave consequences in terms of recession and bankruptcy, then to political and social radicalisation. In reaction to the impact of the 1929 laisser-faire response, a certain number of measures were taken in the North to cushion the impact of the financial crisis: massive aid to banks, injection of an enormous mass of liquidities Liquidities The capital an economy or company has available at a given point in time. A lack of liquidities can force a company into liquidation and an economy into recession. to keep credit and trade from drying up, lowering the interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
of the US Federal Reserve FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank :
followed by the Bank of England and the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

… Measures have also been taken in terms of limiting erosion of the public’s income and consumption. Social stabilizers have been implemented, i.e. several schemes to guarantee income or provide a substitute income independently of economic activity. In several countries, these schemes were extended for several months to expand their social safety net role. Recovery plans consisted of increasing public spending to make up for the fall in private spending. In this context, some people imagined that in the face of the crisis, the governments led by Barack Obama, Gordon Brown, Nicolas Sarkozy, José Luis Zapatero, José Socrates or even Angela Merkel and Silvio Berlusconi would make a Keynesian turn: a structural increase in public spending, concessions to wage-earners, strict rules imposed on financial firms, a halt to the privatisation wave or even resort to long-term nationalisations [1]. This didn’t happen.

In hindsight, it is reasonable to think these “social shock absorbers” were only implemented temporarily, merely in order to soften the recession and limit the risks of potential social unrest due to the crisis provoked by the combined effect of bankers’ appetite for maximizing profits and several decades of neoliberal policies. In fact, in 2008, parties in power and editorialists at major financial media were really afraid that awakening public opinion to a radical critique of capitalism would lead to a popular mobilisation in favour of revolutionary changes. This distress was particularly keen when, in Greece, the rightwing New Democracy government rapidly resorted to austerity measures, provoking a social explosion in December, 2008 and leading to its stinging electoral defeat in the early legislative elections in October 2009.

As for the former Soviet-bloc countries that have become part of the European Union, in particular those that have joined since 2004, the shock doctrine was applied from 2008. The IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
presence since 10 to 15 years strengthened and facilitated this orientation, not without provoking large social mobilizations in certain countries. In Iceland, which is not a European Union member, the shock doctrine was applied swiftly, provoking a very broad popular mobilization and a major political crisis that brought down the government and rejection of a foreign debt repayment scheme in a referendum.

To avoid such an outcome, demand-stimulating expenditures were made in 2008-2009 in the United States, Germany, Spain, Great Britain and France. By taking such action, the governments put off implementation of shock doctrine [2], i.e. the use of a major psychological shock (such as one provoked by a large-scale crisis, a natural disaster or a terrorist attack) to bring in a new wave of neoliberal reforms and brutal economic measures that would be unthinkable in normal times. Government leaders of these countries (supported by the European Commission in that continent) thus combined bank and insurance bailout with setting up a few social shock absorbers, and to succeed in calming down social discontent against bankers, government leaders themselves spoke out against the bad apples at the head of certain private financial institutions. They even criticised a certain type of rogue capitalism and some of them called for putting capitalism on new foundations. Moreover, at the time, they did everything to avert bringing up the risk of a massive increase in public debt, so as not to attract attention to its main cause: the exorbitant cost of bank bailouts, without the money poured in being used to impose public controls on the financial sector or be recovered from the holdings of these banks’ major shareholders.

The implementation of shock doctrine in these countries came about later, starting in 2010, after it was applied in the most fragile countries in the debt chain and the Euro zone: Greece, Ireland, Portugal… Today, while governments vie with each other to impose ever more brutal and dramatic austerity therapy, it is fundamental for public opinion to know exactly how we wound up in such a situation. Running headlong to keep up with the demands of financial markets, the governments of the most industrialized countries have made their own citizens foot the bill. As bank bailouts required investments very risky for immediate profits, on the one hand, and tax policies greatly favouring the richest, on the other, have meant the more humble classes are paying more and more for the consequences of the world crisis and of congenitally unegalitarian capitalism. In other words, the victims of the crisis wind up having to foot the bill for those who caused it. This explains why millions of people experience this as a deep injustice. Such a sense of injustice could trigger a powerful response.

Éric Toussaint, doctor in political science from the universities of Liège and Paris VIII, is chairman of CADTM Belgium (Committee for the Abolition of Third World Debt,, author with Damien Millet of Debt, the IMF, and the World Bank. Sixty Questions, Sixty Answers, Monthly Review Press, New York, 2010. Author of A diagnosis of emerging global crisis and alternatives (2009), 139p.; The World Bank: A Critical Primer (2008); Your Money Your Life - The Tyranny of Global Finance (2005).

Translated by Marie Lagatta


[1Barack Obama, Gordon Brown, the Netherlands government and some others did undertake some isolated nationalisations in 2007-2008, but with the sole aim of preventing an utter failure of the financial and real estate sectors.

[2See Naomi Klein, The Shock Doctrine, the Rise of Disaster Capitalism, Knopf Canada, 2007

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.



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