Poland's Jump to the Market Economy
Sachs, Jeffrey
W hen economists argue, the layman is apt to get lost. I follow the practice of throwing my vote, at least presumptively, to whichever economist I can understand. I always accept the views of Herb...
...S till, the strongest case against the reforms is the outcome of last September's parliamentary elections in which the "post-Communists," as they are now called, and their old allies in the Peasant Party ousted the various Solidarity offshoots that had ruled Poland since the fall of Communism...
...To have a working price system, Poland needed competition...
...To have free trade, it needed not only low tariffs but the convertibility of currency...
...For this Poland needed tight macroeconomic policies with the decontrol of prices...
...To have convertibility of currency at a stable exchange rate, it needed monetary discipline and a realistic exchange rate...
...Sachs summarizes the point pithily: "Where there are no capitalists, there is nobody to represent the interests of capital...
...industrial sector...
...Sachs explains the interrelatedness of the initial reforms: The basic goal was to move from a situation of extreme shortages and hyperinflation to one of supply-and-demand balance and stable prices...
...But they aimed to avert this danger by freeing trade at the same time...
...If economics in general is an arcane subject, the economics of undoing Communism would seem especially so...
...By freeing prices before privatization, Polish reforms ran the risk of monopolistic price-gouging by state enterprises...
...Within the first two years of reform, Sachs reports, some 700,000 new businesses were formed in Poland...
...There is no way, it seems, of taking the pain out of the transition from Communism to capitalism, which is why Sachs is so eager to strengthen the social safety net with foreign assistance...
...But privatization could not proceed quickly (Sachs regrets) because of disputes about who should get what, and neither Sachs nor the Polish government wanted to wait...
...In 1955, Sachs reminds us, Poles were by some counts somewhat better off than Spaniards...
...Thus, the announced drop-offs in industrial production might be a sign of progress rather than decline...
...137 pages/ $19.95 reviewed by JOSHUA MURAVCHIK The American Spectator July 1994 71 nomics...
...And the new "Democratic Left"/Peasant government has not significantly altered Poland's economic direction...
...It owed much to the extreme and bitter fissiparousness of the old Solidarity forces...
...The other reason I like Sachs is that he is refreshingly eclectic, at least ideologically...
...But can a democratic polity, where workers and farmers far outnumber economists, stay the course...
...Sachs, in contrast, has thrown himself into the challenge with verve, optimism, and courage...
...Poland may teach us the answer...
...While thousands of firms, particularly large ones, have yet to be privatized, more than half the Polish GDP, and more than half of the country's employment, is now in the private sector...
...After economic contraction in 1990 and 1991, Poland has boasted positive economic growth in 1992, 1993, and so far in 1994 while most of Europe—including the formerly Communist states that attempted gradual reform—has been going in the opposite direction...
...he is an eloquent exponent of markets...
...But his blows may land with equal force on the left or the right...
...Not that he is tepid in his views...
...Too many other Western economists, faced with the likelihood that there will be little good news soon from the transitional economies, have adopted postures of detached condescension...
...Thirty-three years later, Spaniards were four times richer than Poles...
...On the other hand, conservatives will not be pleased by his strong advocacy of massive Western aid, including direct budget subsidies, of debt relief, and of strengthening the social safety nets of economies in transition...
...According to Sachs, who helped design it, it had five "pillars": stabilization of the currency, freeing of prices and trade, privatization, strengthening of the social safety net, and foreign financial assistance...
...n Poland, the "Balcerowicz Plan" of shock therapy began on New Year's Day, 1990...
...he adduces other statistics that show increases in consumption of meat and fruit (as opposed to coarser foods) and durable household goods...
...Now, I feel the same way about Jeffrey Sachs, the Harvard economist who specializes in advising governments on transforming ., their economies to a market basis...
...I always accept the views of Herb Stein, my colleague at the American Enterprise Institute, because they are always expressed in the clearest English, each point with clear explanations...
...He argues effectively that there is no substitute for private ownership...
...He also challenges statistics showing declines in wages...
...Still, for the country that can endure the pain, the rewards may be enormous...
...Nonetheless, the full meaning of that vote remains somewhat unclear...
...Sachs expresses disappointment that the Polish political system proved unable to move faster on privatization...
...Poland has also enjoyed an "export boom," which, says Sachs, is "broadly diversified and include[s] many sectors, such as consumer appliances, in which nobody thought that Poland would have a chance of staking out an international market...
...They act as if the woes of the east Europeans were the just deserts of the delinquency of having fallen under Communism...
...To have competition, it needed free international trade to counteract the monopolistic industrial structure...
...Imports could generate price competition, thereby disciplining state enterprises...
...10...
...on the contrary, he is a powerful polemicist...
...A key deformity of the Communist economy was the hypertrophy of the industrial sector at the expense of services...
...The first two measures preceded the third...
...Nor does he give any quarter to ideas of "market socialism...
...Events have disproved the idea of a `Homo sovieticus' spoiled by decades of Communism," he says...
...He will brook no gradualism in the transition...
...This is less the result of privatization of existing enterprises than of the creation of new ones...
...On the one hand, Joshua Muravchik is resident scholar at the American Enterprise Institute...
...This was a reliable sign that many Poles were feeling the pinch of the transition...
...Sachs readily agrees that it would have beenpreferable, in theory, to privatize first...
...For him, the justice of the distribution is less important than getting it done...
...These are largely in the service sector, stunted by Communist ecoPOLAND'S JUMP TO THE MARKET ECONOMY Jeffrey Sachs MIT Press...
...But in this little book, based on a series of lectures given at the London School of Economics, Sachs explains Poland's economic reform plan and the underlying ideas of "shock therapy" in terms that are easy to follow...
...Two other things make me a fan of Sachs's...
...If his ideas are wrong, everyone will know...
...Sachs argues that the statistics overstated the initial hardships...
...This meant long lines and more steel than anyone could use...
...He insists on the essentiality of private ownership and goes out of his way to take a swipe at "gurus of worker ownership in the United States, who came to Poland to advocate this new system, despite its minimal role in the U.S...
...For one, he puts his money (or at least our money) where his mouth is, so to speak...
...The managers of state-owned firms in a relatively free market, or the workers in firms in which they are in control, have little incentive for investing in the long-term well-being of the company and much incentive for cashing in or ripping off its assets...
...Free trade, however, also required a convertible currency...
...Markets spring up as soon as central planning bureaucrats vacate the field...
Vol. 27 • July 1994 • No. 7
