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In Poland, It's Sachs Versus Socialism

By Brian R. Hecht

Few Harvard professors can claim that they have been compared to Indiana Jones, John Kenneth Galbraith and Herbert Hoover.

True, Jeffrey D. Sachs '76, who is Stone Professor of International Trade, does not carry a bullwhip. He has never won a Nobel Prize. And the chance that he will be elected president of the United States is slim at best.

But for Sachs--who is currently masterminding Poland's switch to a market economy--none of these comparisons are wholly undeserved.

Brash young Sachs's overseas exploits prompted The Los Angeles Times to call him "the Indiana Jones of economics." The Harvard professor's forays into real-world economic management have elicited inevitable comparisons to Galbraith.

And critics often cite his Hooveresque ability to induce depressions in the name of reducing inflation.

Although Sachs's colleagues in the Economics Department may not agree with all these comparisons, most do agree that Sachs is now in a unique position to transcend the boundary between economic theory and practice. And in doing so, they say, he has become one of the most influential people on the global economic scene.

Sachs--who was tenured by Harvard at the young age of 29--became the chief economic advisor to Poland's Solidarity Party in spring of 1989, on the very day that the labor movement was legalized by the then communist government. So when Solidarity finally took power that summer, the first non-communist government in Eastern Europe turned to Sachs to oversee the economic transition.

"Remember, this was the before the revolution of 1989 had occurred," Sachs recalls. "Now we are all looking inretrospect that it was all so obvious, but at thetime, it was beyond imagination that Solidaritycould actually take over the government," heexplains.

"They were legitimately concerned, given theextent of the crisis," he says. "What would theydo? Would they have enough levers of power? Howwould they operate?"

Sachs likens the situation to a politicalcartoon he saw that depicted Poland before thereforms as a "plane that was flaming out with bothengines on fire." In the drawing, then-Polishleader General Jaruzelski is walking to the backof the plane holding a broken-off steering wheel."He leans over to Lech Walesa and says, `Okay, youtry and run this plane,'"

"They were in hyperinflation--which isinflation of more than 50 percent per month--therewas a massive shortage of almost every commodity.There were price controls, black markets,shortages, bribery and long lines," he says. "Itwas a very chaotic and desperate situation lastsummer."

So Sachs devised a plan for economic reform notunlike one he had implemented in Bolivia in themid-1980s. In short, Sachs recommended that thePolish government immediately reject socialism,move toward a market economy by decontrollingprices and allow them to settle at a marketequilbrium.

The 36-year-old spectacled professor is quickto explain his plan with an air of confidence anda slight hint of self-defense. He speaks of hisown solutions with fervor and an enthusiasm seldomassociated with economists.

He tells of a four-part plan to deal withPoland's second major worry--how to managelong-term economic stabilization. Sachs saysPoland must eliminate centralized planning,privatize state enterprising and solicit foreignaid in order to end hyperinflation and shortages.

Most importantly, he says, all this must all bedone quickly. Very quickly.

"There's so much to do," Sachs says. "There'sso much risk for political paralysis that if youstart going slowly, you'll never finish the task."

The Bottom Line

So far, Sachs's "big bang"--or "shocktreatment," as it is sometimes called--has broughtdown inflation. But it has also sent real wagesplummeting, and unemployment soaring.

Today, critics cite those side-effects as proofthat Sachs's economic jolt is no answer to EasternEurope's economic woes. In a front-page articlepublished in The Nation this summer, JonWiener, a history scholar at the University ofCalifornia, takes aim at Sachs's economic plan.

The program, Wiener claims, is based on thefaulty assumption that ending inflation and movingto a market economy will lead to economic growth.More likely, he says, it will lead to adepression. "Polish workers were the first inEastern Europe to bring down a Communistgovernment," he writes. "They could easily be thefirst to bring down a post-communist government."

Sachs acknowledges that he has some critics,and that his plan has helped frame an ongoingacademic debate. "There were people at thebeginning who said that the shock program wouldlead to chaos and so forth," he says.

"I think there is a more and more of anacceptance of this strategy, but I think it stillhas its critics and doubters," he says.

But while Sachs generously grants others theright to dissent, he is almost merciless in hispoint-by-point refutation of their arguments.

"I promised that the inflation would end, andthe inflation ended," he says. "I said theshortages would end. People doubted that. Theshortages ended. In a sense I believe the trackrecord on this model is quite successful."

In fact, most of Sachs's colleages--both withinHarvard and in the real world--tend to agree.Sachs has met with relatively little publiccriticism from Harvard's economics department, andfew deny the relatively beneficial effects.

In fact, Sachs points to both the positive andnegative effects of his plan as proof that shocktherapy really works. "I think that whenever youask what are the facts of the policy, you have toask what would have happened in the absence of thepolicy," he says.

"The first point I would say is that almost allworld experts suggest that if they had not donethis they would have been enmeshed in an evenworse battle with hyperinflation," he says. "Buteven if you just measured what has happened thisyear, I think the hardships are very muchoverstated."

"It seems in some sense too complicated for thegeneral press," he continues. "Because I say thatthe hardships this year are overstated and peoplethink that I mean that life in Poland is great.What I mean instead was that life in Poland wasmiserable, and that it remains miserable thisyear, but the change from last year to this yearisn't so bad, and in many ways is actuallyimproving."

Sachs, however, stops short of declaring totalvictory in his one-man economic war on socialism."I think it will take years in the end to prove,"Sachs says, emphasizing the need for patience."But I firmly believe that if they stay on thistrack they will turn back and see this as adecisive turning point for the better."

Judging by his past record, Sachs has reason tobe confident. Using a similar shock therapytreatment under Sachs's guidance, Bolivia becamethe only Latin American nation to endhyperinflation in the 1980s. Sachs now advises allthree political parties in Bolivia, including onethat harshly criticized his economic reforms.

`Economists Should Be Useful'

Sachs's role as an economic advisor in bothLatin America and Eastern Europe raises someinteresting questions about the role of theintellectual in managing actual economies. Sachsand his colleagues alike say that real-worldexperience usually benefits not only the academic,but also his or her students.

Henry Rosovsky, who is acting dean of theFaculty of Arts and Sciences, says hewholeheartedly approves of Sachs's economicadventures. "I have always believed thateconomists should be useful," says Rosovsky, whois also an economics professor. "And at the sametime this is good for Harvard economics. Jeff willnever be the same. This will affect his researchand teaching."

Sachs agrees, saying that working with realeconomies provides insight that studying theoryalone cannot. "I believe that intellectuals canmake a contribution to the world, so I don't viewit purely as training for myself," he says. "I'mvery proud of what economists know."

"I believe that what we understand is not justtheoretical knowledge, but is practicalknowledge," he says. "I believe that what I teachto students is something real, and not justsomething for the classroom, for anothergeneration of economists, but something that isreal and applicable to concrete situations."

Sachs is currently taking an unusual two-yearleave, the type usually reserved only for facultymembers accepting presidential cabinet positions.But Rosovsky says he would rather let Sachs take along leave than have him juggle too many things atonce.

"All this should be done without neglectingone's duties," Rosovsky says. "Obviously, youcan't do everything at once."

Still, Sachs does not expect to have much freetime, even while on his two-year leave. Sachs--whocurrently travels to Europe approximatley twice amonth--recently agreed to manage Yugoslavia'stransition to a market economy.

Sachs will also be organizing a UnitedNations-sponsored team of researchers and advisorsconvened to help the Soviet Union and EasternEurope manage their respective economic reformprograms. Through this project, Sachs will likelyinfluence almost every economy in thenewlyliberated Eastern Europe.

Sachs defends his busy schedule by pointing tothe careers of other economists who have managedto juggle academics and advising. "I would say,looking at the careers of many great economists,you often find they were heavily involved inpractical debate," he says.

"I'm not comparing myself to anybody. I'm justsaying that what you can learn is the experienceof being involved with real world issuesenormously helps to focus questions, to understandthe dynamics of the situation more closely," hesays.

Sachs says that when he returns to his facultyposition in 1992, he will relate his experiencesto students, and will likely offer some sort ofinstruction for undergraduates. But while Sachsacknowledges that students will benefit from hisactivities, he more frequently points to theloftier advantages of his work as an advisor.

"I find it very gratifying, and a very strongconfirmation for me that the discipline that I'mengaged in is a serious discipline," he says.

"It is a real discipline," he says ofeconomics. "And it has real potential to help thehuman situation."CrimsonZachary M. Schrag

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