The purpose of this analysis is to understand the evolution of Jeffrey Sachs's thinking through his time as an economic advisor for foreign countries, and to. Possibly Sachs' best presentation of his argument for the rapid transformation of Poland's economy comes from his book "Poland's Jump to the Market Economy."9. After his use of shock therapy in Poland, Sachs' next consulting role took him to Russia.
The first chapter will focus on Sachs' work in Bolivia, but not before defining Sachs' background as an economist. This chapter will also begin with a brief background on Russia's economic situation to contextualize Sachs' policy.
Chapter One: Creating Shock Therapy
On his first arrival in Bolivia, Sachs later recalled that he brought with him several economic papers, all of which described the successful endings of the inflationary periods of the 20th century, some as decisively as if they had ended in one day.13 As the Bolivian put it Planning Minister Gonzalo Sanchez de Lozada recalled, “at the time. Of the two main types of hyperinflation models, Sachs's work is best understood through the lens of the monetary model. Under this model of hyperinflation, companies (or in the case of Poland and Russia, international companies) perceive a rapid appreciation of the currency and raise prices to cover the expected depreciation of the currency.
While Jeffrey Sachs might have remained a distinguished academic, his career took a sudden but decisive turn to practice in July 1985 when a former student invited him to make suggestions on how to solve the growing problem of hyperinflation in Bolivia.14 Before the end of the year, Sachs became an adviser to the newly elected President Victor Paz Estenssor. Strong opposition came from large landowners, some of whom would be facing taxation for the first time.28 While reforming the tax system was important to Bolivia's economic future, Sachs had no significant role in the process because, as he saw it, , “it was the government's fight, not [his].”29 Sachs came to Bolivia as a macroeconomist with a short-term mission to help quell hyperinflation, not as a long-term development consultant.
Chapter Two: Jeffrey Sachs and the Polish Transition
Jacek Kuron, a newly elected member of Poland's lower house, and a greater embodiment of Solidarity's egalitarian ethos, became Sachs's champion. Senate Minority Leader Robert Dole, whose attendance symbolized American support for the new government of Poland.26 In Sachs' impassioned speech to parliament, he explained how he had ended Bolivia's 24,000 percent inflation rate, as he claimed, overnight. As such, Sachs co-opted the slogan of Poland's revolution, "the Return to Europe" and applied it to his own economic reform package.30 In this way, Sachs was incredibly unique in both his position within the government, and how he outside of his normal borders.
By the end of the year, Polish inflation approached nearly 600%, and since the beginning of 1988 it had increased tenfold.34 Polish hyperinflation also had an important and unusual feature. The government eventually supported the proposal together with other countries, so that the zloty stabilization fund was successfully sponsored by the introduction of reform programs in Poland.69. The privatization strategy was not adopted at the beginning of the reform efforts in Poland.
Sachs later reflected that this proposal, implemented slowly and limitedly, and ultimately with much controversy, played a modest role in the privatization of Poland and was "not necessary for the success of the Polish reforms...". He even went so far as to speculate that “it [was] ultimately probably a good thing that [NIFs] were not widely adopted.”84. However, the NIFs are relevant as an indicator of the difficulties reformers faced in Poland's privatization efforts. At the forefront of Poland's “leap to a market economy,” there was very little understanding of how to make that leap.
Poland's unemployment rate was low at first, just 0.3 percent in January 1990, just after the reforms began. 96 It is important to note that land contributes such a large amount of Polish assets, as about 60 percent of Poland's total land area at the time was agricultural land. Regarding the privatization of the state sector, Sachs chose to take a more gradual approach.
Ultimately, while the GDP growth coming out of the mid-1990s leads many to suggest that Sachs' plan for Poland was a success, the evaluation of Poland's economic progress depends in particular on the criteria used . Furthermore, aspects of Poland's rising GDP can be directly attributed to policies that Sachs did not call for, such as huge social spending.
From Russia with Love
Yavlinsky at the time was the head of the Joint Economic Department of the USSR Government and, after looking at Poland and meeting Sachs, became committed to the notion of a rapid transition from a centrally planned economy to a free market. Houston categorically denied the Soviet request for aid.15 This rejection began a trend of rejecting requests for financial support that continued even after the collapse of the Soviet Union, and as Sachs later did. While Gorbachev was still President of the Soviet Union, on July 10 Boris Yeltsin began his term as President of the Russian Soviet Federative Socialist Republic (RSFSR).
While Gorbachev was still President of the Soviet Union, Yeltsin was President of Russia and this made him the de jure leader of the RSFSR. In October 1991, Sachs was informed that Yegor Gaidar was likely to head Yeltsin's economic team and that they were planning for Russia to launch radical market reforms "with or without the rest of the Soviet Union".17 With the political and now economic split of Russia. with the Soviet Union gaining traction, the dissolution of the Soviet Union was becoming much more conceivable. Except for the elimination of price controls and the execution of corporate commercialization, none of these recommendations were finally implemented.23.
While he later impolitely claimed that he had only "a tangential role in the plans for privatization of large industries", in late 1991 Sachs was working on privatization strategies with Anatoly Chubais, the incoming head of the State Property Commission. The IMF merely tracked the political decisions. rather than making an independent assessment. the very low quality of IMF analysis and deliberations. seemed to jump to conclusions regardless of the evidence. The former Chairman under the Soviet Union, his return was instructed by the anti-. reformist majority of the Supreme Soviet - which controlled his appointment under constitutional authority.
Locked out of the central bank and cut off from any significant assistance from the IMF, Jeffrey Sachs quickly lost allies within his first year officially advising Russia. To make matters worse, Sachs had not met with Yeltsin in person at all in 1992, only at their meetings before the dissolution of the Soviet Union. Sachs agreed, and was appointed co-director, alongside friend and colleague Anders Aslund, by
With Poland's privatization efforts now underway, it is clear that Sachs' policy proposals, and outright prioritization of the issue, have been responsive to Poland's struggle to restructure their large state-owned enterprises. In the most basic sense, Shleifer promoted the rapid and universal exclusion of government from interference with the economy.
Conclusion
While the level of Sachs' practical impact in Poland and Russia is debatable, in Bolivia it is clear that he had enormous reach in his advisory power and that shock therapy, while still in its infancy, was fully followed. As was the case with all the countries examined in this thesis, the allocation of foreign subsidies via debt forgiveness and other strategies proved to be one of the biggest determinants of the success of shock therapy. As such, Sachs' ability to negotiate with the IMF, albeit inconsistent, was crucial to the nations he advised.
While Bolivia's economic recovery has undoubtedly been successful, the downsides of shock therapy's speed have manifested in the form of riots and protests. While shock therapy was welcomed as a practice, Sachs's influence functioned differently in Poland compared to Bolivia. On a much larger stage with more international attention, Sachs' role as a foreign economic advisor was inherently different from what it had been in Bolivia.
Working with a team of Polish economists and IMF representative David Lipton, Sachs was not the only opinion in the room;. Forward] Not everyone was convinced that the best way was a radical transition to a free market economy.”4 As a Harvard economist who gave speeches alongside Robert Dole in the Polish parliament, Sachs' deliberate use of the Solidarity slogan “Back to Europe” was clearly reassuring. skeptics in Poland. While the reasons for avoiding the issue of privatization early in Sachs's involvement remain unclear, the efforts that were eventually adopted were far more gradual than Sachs had advised.
As a respected Western economist, Sachs's ability to enlist support from the United States, other Western countries, and the IMF itself was a unique feat that Poland and Bolivia were unable to successfully achieve. Ultimately, this examination of the practice of shock therapy, by leading architect Jeffrey Sachs, sheds light on the process and hardships that befell the countries that chose to adopt it in the late 1980s to early 1990s. Overall, Sachs's policies were not stagnant and unchanging. , but sought to respond to the individual needs of each country he advised. While the complications of macroeconomic stabilization clearly seemed to be hampered by contextual hurdles, it is clear that Jeffrey Sachs' implementation of shock therapy was most successful when supported by the international community.
Works Cited
34; Four Reformers in Russia's Shock Therapy: Insufficient and Incompetent External Help and Lack of Internal Political Consensus and Control." Vestnik: The Journal of Russian and Asian Studies, 4 April 2016.
