The End of Poverty: Economic Possibilities for Our Time

In early 1989 Sachs was invited to Poland to advise regarding the economy. He declined unless and until Lech Walesa’s political party, Solidarity, was legalized and he was permitted to work with them. At the time, Solidarity was Poland’s primary opposition to the ruling communist party under the increasingly moribund Soviet Union, and Walesa remained under house arrest. That changed more quickly than Sachs had thought possible, and he was soon brought in for two months of work that he describes as “the most remarkable of [his] professional life” (111).

Sachs describes his meetings with leaders of the Polish opposition as the country began to break free from Soviet rule as rushed, often late-night affairs. In a matter of a few hours, he wrote out what may be the first comprehensive plan for transitioning from socialism to a market economy. The key concepts were stabilization, liberalization, privatization, a social safety net, and international harmonization.

In discussing his Polish experience, Sachs begins to show what he means by “differential diagnosis.” Despite similarities to Bolivia, Poland’s differences are more important, according to Sachs, for identifying the best way forward. He notes that the Poles were mostly literate and urban, the core infrastructure already existed, and the geography was highly favorable. Perhaps most important, however, was the long-standing Polish goal of “returning” to Western Europe, returning to “normal.” The plan was sufficiently dramatic that it came to be known as “shock therapy.”

It worked. Soon, Polish stores were fully supplied with goods at reasonable prices and the black markets of the Soviet era were no longer necessary. Although there was pain, particularly for workers who had known only the communist training for industry positions that no longer made sense, the process was remarkably fast and effective.

Sachs describes the essential role of the United States and other rich countries in setting up the $1 billion used to stabilize the Polish currency, as well as his own gutsy move to get much of Poland’s crushing Soviet-era debt forgiven. That support and geography, Sachs suggests, were crucial.

Sachs identifies several specific lessons learned in Poland, including the importance of ties to other countries, the significance of broad guiding concepts, the political utility of large-scale conceptual thinking, the refusal accept “no” as an answer, and the need for external support when an economy faces major crises.

In Chapter 7 Sachs shares what seems to be the first, and arguably the only, significant failure of his professional career: the effort to promote Russia’s effective transition to a market economy after the fall of the Soviet Union. His engagement began just before the union’s formal end in 1990 and continued until he resigned discouraged at the end of 1993.

Sachs makes clear that there were major differences from the outset between Russia and, for example, Poland. Perhaps most notably, “[n]obody in Russia had ever lived under normalcy” (134), so the target was not obvious to the people or the reformer politicians. Add to this political history Russia’s inhospitable geography—it is an enormous country with few natural trade routes and low food production due to high latitude—and the reluctance (perhaps recalcitrance) of the rich world to provide aid to the heir of their former arch nemesis, and it is not difficult to see why Sachs’s two-year stint as a formal economic advisor to the new Russia was not fruitful.

While Sachs dedicated extensive effort to bringing external aid into Russia to stabilize the currency and the like, as he had done in Poland, it was simply not going to happen in Russia. Western powers’ failure to provide such aid, according to Sachs, had very high costs in terms of the future of Russia and it geopolitical alignments. He maintains that democracy had a real chance in the country, albeit brief and uncertain, in the early 1990s, but it disappeared quickly. The people reverted, by the millennium, to “searching for a strong leader with centralized power” (145).

Writing for 2005 publication, Sachs explicitly states that it is too soon to determine whether democracy and market reforms will flourish in Russia. His tone, however, and the fact of his resignation from an advisory role, seem to speak volumes. Despite his dedication to arranging external aid, Sachs implores that crucial reforms could and should have been made without it, thereby explaining the failure as one arising from the lack of political will (or, at least, political success) to adopt a sufficiently bold approach to transition. That, and “the massive theft of state assets under the rubric of privatization,” which Sachs himself strongly opposed as contrary to the “principles of honesty and equity” by which he abides (147).