Brainwashed by the market: What drives Naomi Klein?

Naomi Klein's critique of 'disaster capitalism' will echo around the world – but its roots lie in a scandal close to her Canadian home

The author and activist Naomi Klein has just endured a gentle mauling on the Today programme. Klein had been speaking about her new book The Shock Doctrine, arguing that capitalism's latest incarnation is about profiting from – even creating – crises. Diane Coyle, an economist and BBC trustee (and former economics editor of The Independent), sniffed that this argument was "another example of American imperialism". When we meet an hour later at a Soho hotel, Klein seems unruffled. "I did some research about Diane Coyle," she says, rooting through a file. She hands me a paper entitled "The Role of Mobiles in Disaster and Emergencies", which Coyle wrote for a mobile-phone trade association.

"You can see," she says, "that I'm a bit of an obsessive." Ironically, for a woman who has been hailed as the author of a "Das Kapital of the growing anti-corporate movement", there's nothing grungy about Klein. With her sleek hair-cut, immaculate teeth and friendly but down-to-business attitude, she could easily be mistaken for a telecoms exec winding up a power breakfast in the lobby of a boutique hotel.

Having tackled the way our affluent lifestyle is a by-product of globalisation's devastating effects on the world's poor in No Logo (2000), Klein now deftly marshals another enormously complex subject into a series of elegantly argued chapters. In a damning critique of Friedmanite economics, The Shock Doctrine: the rise of disaster capitalism (Allen Lane, £25) uses thousands of documents and interviews to expose how governments and corporations have used or even invented disasters to push through laissez-faire market reforms before local populations can recover from the shock. Wars and disaster responses are now so fully privatised that they themselves have become the new markets.

Klein traces this Dr Strangelove world back to Milton Friedman, who turned the University of Chicago's economics department into a hotbed of free-market radicalism. With the complicity of the US government and its intelligence services, Friedman and his "Chicago Boys" brought their doctrine to Latin America in the Seventies. Where democratically elected leaders like Salvador Allende were ousted by military dictators, the Chicago Boys moved in to help privatise, de-regulate and clean up. Their greatest weapon, argues Klein, was shock. After their success in Chile, the roadshow moved on to Argentina, Bolivia and Uruguay. Later, Friedman's star graduate, Jeffrey Sachs, was parachuted in to Poland and Russia, where democracy was sacrificed for market interests. The rumours that sparked the "Asian Flu" financial crisis of the late Nineties saw the dismantling of state-owned industries.

The list goes on, culminating in the new disaster economies that have turned Thai fishing villages into high-end beach resorts, post-tsunami, and New Orleans public schools into privately funded "charter" schools after Hurricane Katrina. But does Klein believe that the often faceless operators believe their rhetoric about free markets being the cornerstone of democracy? She pauses. "There are some true believers who really think that trickle-down economics is the best way to improve the lot of all humanity," she says. "But I think those people are few and far between."

Among the most haunting chapters are those dealing with the dismantling of Iraq. While the Bush presidency now seems mired in scandals, Klein takes little comfort in the comeuppance of his closest allies. "I wrote the book because I think we need to be talking about systems rather than individuals," she says. "My worry is that the danger of the Bush years is that these guys are so outrageous that the focus has just been on the bad apples. You gun, gun, gun to get Rumsfeld to resign; you gun, gun, gun to get Cheney to resign, and then do we really think this is going to change things?'

Klein recently attended a congressional hearing on private-sector security in Iraq, where military support services are being contracted out to corporations such as Blackwater, Bechtel and Halliburton. The number of private contractors in Iraq now outstrips the number of US forces in the field. Klein found that the politicians were relying on the journalists for their information. "It was amazing how little they knew – they were asking us, 'What's going on?' It was kinda nice that they were asking," she says, widening her eyes with astonishment, "but it was also a little late."

What the Bush administration has created are no-go areas for private contractors. Klein relates how two former employees at the security firm Custer Battles accused it of defrauding the government for work at Baghdad International Airport. Even though a federal court found Custer Battles guilty, the verdict was overturned when the company argued it wasn't a part of the US government. So the Bush administration had indemnified US corporations in Iraq from liability under Iraqi or American law. For Klein, "Iraq represented the most extreme expression of the anti-state revolution: a hollow state."

I ask Klein if she feels grateful to have spent her childhood in Montreal during the tail-end of prime minister Pierre Trudeau's Liberal government. "Oh yeah," she says. "I feel very fortunate to be a Canadian, and when I talk to my American friends about these issues, it's very abstract for them. They don't really know what 'public' means because this agenda has triumphed so completely." Klein's parents had left the US in protest against the Vietnam war, and headed for a country where public services were flourishing.

She had impeccable "red diaper" credentials. Her grandfather Philip Klein, an animator at Disney, was blacklisted for organising a strike in the Fifties. Her father, Dr Michael Klein, taught at McGill University's medical department, while her mother Bonnie Sherr Klein became a celebrated feminist film-maker. But if Canada proved a haven, Klein has drawn on a sinister episode from her neighbourhood as a central metaphor for the book.

The Allan Memorial Institute, a psychiatric hospital at McGill, had been a place that people had whispered about, says Klein. A family friend was a chief intern who refused to participate in the experiments of its director, Dr Ewan Cameron. "I never knew the history, even though I had these close connections." Since the Eighties, there have been revelations about the horrific abuse of mostly female patients, who were subjected to a regime of drugs, ECT and sensory deprivation to erase and "repattern" their personalities.

Further research revealed that Cameron's experiments were funded by the CIA to create a handbook for torture. Known as Kubark Counterintelligence Interrogation, the techniques – first used on women suffering from post-partum depression – became standard torture practice: sensory deprivation, stress positions, hooding, electric shock. But it was only as Klein was leaving Iraq in 2004, when photos documenting the torture at Abu Ghraib prison were being leaked, that she made the connection with Cameron.

"There's something about putting populations into a state of shock that these architects of war are drawn to," she says. "So it made me want to understand what happens when a brain goes into a real state of shock." Klein interviewed Gail Kastner, a former McGill nursing student who had sought psychiatric help for anxiety. After receiving a cocktail of drugs and ECT, Kastner left the clinic with a badly damaged memory and a diagnosis of paranoid schizophrenia. After their meeting, "it was as if I'd been talking about a photocopy and now I was talking about the real thing".

That "real thing" was a method of shocking individuals and nations into a state of submission, wiping out memories and filling them with what doctors saw fit. This emblem of Klein's book has also become a through-line for a short documentary film she has made with Alfonso Cuaron, the Mexican director of Children of Men.

"We sat down and wrote the script in one day," says Klein. "I loved this process because Alfonso is so creative and he sets the bar so high." The Cuaron film, screened at the Toronto and Venice film festivals, was also released on YouTube. Her book will be published in 10 languages. She'll spend the next year travelling the globe to promote its message. Whatever her critics might say, Klein's work is taking a generational pulse, and possibly lifting the veil on a perilous post-Bush future.

Biography: Naomi Klein

Naomi Klein, 37, grew up in Montreal, the daughter of activists who had moved from the US to Canada. A journalist who began as editor of the University of Toronto's newspaper The Varsity, in 2000 she published No Logo: taking aim at the brand bullies.

It became a "movement bible" for anti-corporate protesters, translated into 28 languages. In 2002, she published her essays, Fences and Windows. She has collaborated with her husband Avi Lewis on a film about factory workers in Argentina, The Take, and writes a syndicated column. She was ranked 11th in the 2005 Global Intellectuals poll – the highest-ranking woman. Her new book is The Shock Doctrine (Allen Lane). She lives in downtown Toronto