Jonathan Larson has supplied this interesting background for Jeffrey Sachs'
new policies.
Jon writes me, that the article on Sachs comes from an essay written by
M.Levine in 1993 called "The Rot at the Top". Where he did not write.
For all criticism against that piece I would I think still agree with Jon in
saying that,
>Even so, Sachs promoted austerity on one of the poorest nations on
>earth--THAT claim cannot be disputed. And as for the facts that cocaine
>became widely available in every small town in USA during the middle 1980s,
>they cannot be disputed either. Whether Levine's assertion that these two
>events were related is the only item open for dispute.
However there is also info on this in Sachs' own book:
Sachs, Jeffrey and Juan Antonio Morales. (1988). Bolivia 1952-1986, San
Francisco: International Center for Economic Growth.
a related book is:
Aaslund, Anders, Jeffrey Sachs et.al. (1993). Changing the Economic System
in Russia, London: Pinter Publishers Ltd.
Arno
-----Original Message-----
From: Jonathan Larson [mailto:eltechno@clear.lakes.com]
Sent: Monday, September 21, 1998 12:10 AM
To: Arno Mong Daastøl
Cc: MAI NOT
Subject: Re: Sachs's G-16 proposal (Who is J. Sachs?)
>It seems like Jeff Sachs (somewhat belatedly) has learnt a lot of lessons
>from his shock therapy adventures! A very worthwhile article. Greetings!
>Arno
>
Thanks Arno for the posting!
For Jeff Sach to criticize the IMF for its failings is a little like a hog
criticizing someone for their foul odor.
I am including a piece of an essay written in 1993 called "The Rot at the
Top" about J. Sachs. For those who do not know the man and his work, I
hope this is a helpful primer.
**************************
Ignorance is Dangerous
Jeffery Sachs must be considered, quite
legitimately, as representative of Harvard
University. In fact, he is a Harvard hotshot who was
granted a full professorship with tenure at the
still-tender age of 36. He is such a star in their
intellectual firmament that they regularly give him
time off from his other duties to advise foreign
governments on matters of public policy.
Sachs is an economist. Modern economists are ranked
by their ability to mathematically model human
behavior with highly complex equations. Modeling
specialists are called "quant jocks" for their
dedication to the highly specialized gymnastics of
advanced math. Make no mistake, if mathematic
modeling were an Olympic sport, Sachs would be a
medal contender.
For an economist, Sachs borders on hip. His writing
is not exactly exciting, but unlike most of his
peers', it can be read by the general public. He
wears his hair in the mop-top style of the 1964
Beatles and projects the persona of a caring
individual who is at ease with the responsibilities
of a public intellectual. Coming from a distinctly
middle-class background, Sachs has none of the
clenched-teeth snobbery usually associated with Ivy
League schools. He is even good on television-that
ultimate litmus test in American culture. There is
no reason to believe that he is not loved and
admired by his wife, children, students, or dog.
In spite of this, Jeffery Sachs has become one of
the most hated Americans around the world. Because
he is obviously not evil, stupid, lazy, or socially
inept, the only option for this seemingly bizarre
outcome is ignorance. And if Sachs is ignorant,
there is rot at the top of the American educational
system. Obviously, this transformation from
respected academic superstar to a person considered
to be an enemy of humanity is a case worth studying.
Sachs' first foreign adventure in public policy
formation took place in Bolivia in 1984. Bolivia was
an economic basket case caught in a debt spiral
caused by corrupt overborrowing by a succession of
military juntas. American banks had loaned billions
that had been spent on weapons or simply squandered
on payoffs that had increased the numbered bank
accounts of anyone who could get their hands on the
money.
All of this lending was based on the shaky
assumption of former Citibank Chairman Walter
Wriston who made famous the saying, "Countries do
not go bankrupt." Besides, Bolivia was a prime
source of vital natural resource-tin. Tin is used
for food packaging and electronic circuits. But in
the go-go lending days of the 1970s, so many banks
simultaneously took Wriston's advice seriously,
Bolivia's income from tin was borrowed against many
times over. Then the worst happened, the
international price of tin collapsed as consumers
around the world found substitutes-especially for
food packaging.
By 1983, it was obvious that there was no way that
Bolivia could even pay a fraction of the interest it
owed on the money it had borrowed. Not only had the
price of tin collapsed, but none of the money
borrowed had been used to create alternative sources
of income. The money had been spent or stolen-not
invested.
With money over committed for debt service,
virtually none remained to import anything. Severe
shortages of goods triggered an outbreak of
hyperinflation sometimes running as high as 1600% a
month.
Sachs' job was to bring some order out of this
chaos. His recommendations followed essentially
standard practices for such situations. In return
for modest debt restructuring, Bolivia was forced to
"rationalize" the tin mines, sell off their
publicly-owned companies, severely restrict the
money supply, and embark on a course of fiscal
austerity. By forcing the banks to take a small
"haircut" in the deal, Sachs even gained a
reputation for innovative and enlightened behavior
in the eyes of the major Western business presses.
In fact, some thought he had given the Bolivians too
good a deal.
From the point of view of the Bolivians, their chaos
was replaced by utter desperation. This is one of
the world's poorest countries. Che Guevarra was
killed in Bolivia where he had gone to export the
Cuban revolution. He had selected Bolivia precisely
because he considered social conditions so desperate
that the country was ripe for a revolution.
Fighting inflation by restricting the supply of
money obviously did nothing to increase the supply
of goods. To the average citizen of La Paz, rapidly
inflating money was better than having no money at
all.
The thousands of tin miners who lost their jobs were
forced into an economy with few alternatives. Of the
ways to survive, only one held any realistic
possibilities-coca farming. In 1984, the C.I.A.
engineered a coup d'état to ensure that there would
be a government that would agree to professor Sachs'
austerity recommendations. According to Michael
Levine in his book The Great White Lie, which deals
with his work in the Drug Enforcement Administration
(DEA), the new government of Bolivia consisted
almost exclusively of known international cocaine
dealers. Whatever the validity of Levine's claim, it
is a fact that the 1984 change in the government of
Bolivia was called the Cocaine Coup throughout Latin
America. Levine suggests that the C.I.A. knowingly
installed a government of drug dealers because they
were the only folks in Bolivia who had any chance
whatsoever of servicing the debts to the
international banks. He further suggests that the
C.I.A. promised protection for drug shipments and in
some cases shipped the drugs themselves in order to
show their support for the new regime.
But such were the sordid details. Sachs was a hero
who had protected the income stream of the banks by
demonstrating that the calls for economic structural
adjustments could be flexibly applied in even the
worst-case scenario. The fact that he an author of
an agreement that would help swamp American cities
with cheap crack probably never even entered his
head. No economic model demonstrates a link between
tin mining and drug addiction so for Sachs, it
didn't exist as a possibility.
Flush with his "triumph" in Bolivia, Sachs would
take his traveling economic salvation show to
Poland. This was uncharted waters. No one had ever
converted a Communist state-run economy to a
Capitalist one before. But Sachs seemed not to have
any doubts about his prescriptions that were called
"Shock Therapy." Poland was to make its currency
convertible so that they would become part of the
international system of trade, deregulate prices and
otherwise relax state controls, privatize
state-owned industries, and close down inefficient
operations. Any or all of these suggestions sounded
perfectly logical on the face of things.
Sachs, however, insisted that all of these things
must happen together. Again, he offered the
incentive of debt restructuring and since Poland was
also so deeply in debt that even interest payments
were impossible, this convinced the otherwise
skeptical Poles who, in any case, had few
alternatives. "Shock Therapy" was implemented to the
cheers of the western financial press. And again,
the results were utter chaos.
Rents and food prices skyrocketed. Poland's shops
filled with shiny western goods but people could not
afford them. Government services that held together
the social fabric like day-care were eliminated.
Many Polish cities relied on a single industry. If
they were deemed "inefficient" and closed, whole
cities lost their very reason to exist. Forty
percent unemployment rates became common in such
areas. Massive unemployment drove people to
flee-causing immigration problems in the rest of
Western Europe. The unemployed who stayed behind
were forced to become petty black marketers or
worse. Crime became an epidemic.
None of this seemed to trouble Sachs-if he had any
awareness of the problems he had caused. More
likely, he dismissed the cries of pain boiling up
from the population as merely a sort of birth trauma
for the new order. Sachs would tell whoever would
listen that his prescriptions would lead to the
prosperity of the West. For a while, the Poles
believed him. But as the birth trauma disintegrated
into social chaos, the rumblings of discontent began
to sound pre-revolutionary. In 1992, a parliamentary
election was held and the largest party turned out
to be the Communists. Sachs' prescriptions had been
so absurd that after 44 years of Stalinist misrule,
Poland was ready to return to the "good old days."
Sachs was on a roll-by 1989 he and his advice formed
a corporation with offices in Helsinki. Yeltsin
assumed power and Sachs became an official advisor
to the fledgling Russian government. The results
were even more devastating than in Poland.
Opposition to Sachs' ideas began to solidify in the
Parliament. In 1993, Yeltsin dissolved the
Parliament and attacked his opposition with tanks.
Elections were held and the biggest vote-getter was
a 1930s-style Fascist named Vladimir Zhiranovsky. In
fact, Yeltsin's "reformers" got less than 15% of the
total vote.
Sachs was a campaign issue in this election because,
almost incredibly, he appeared on Russian television
to sell the Yeltsin version of economic reform. His
Russian counterpart, an economist named Yegor
Gaidar, was blamed for the social disintegration of
a country that had been a superpower. Following the
elections, Gaidar was forced to resign as Yeltsin's
chief economic advisor and Sachs quit his job
shortly thereafter. He went home to the USA to write
his own account of the Russian debacle in The New
Republic. He was utterly unrepentant for causing the
chaos that literally put a Hitler in line to run a
country with over 10,000 nuclear weapons. His advice
was sound, he maintained steadfastly, the only
problem was that the Russians had not acted on his
ideas quickly enough.
One can sympathize with Sachs. How could HE have
caused this chaos? By any standards he knew, he was
not wrong. He had almost never been wrong in his
life, how could he be wrong now? Every move he had
made in almost a decade had brought him nothing but
cheers from precisely the sort of people he
respected the most. He was an academic superstar at
the most prestigious university in the land and
commanded a healthy six-figure annual income. How
could he be wrong?
Yet what can one think of a person who leaves in his
wake a desperate cocaine economy in Bolivia, a
renewed Communist Party in Poland, and a Russia on
the brink of civil war with a Fascist offering to
restore order and greatness? If these are not signs
of error, what are?
Sadly, Sachs' mistakes are so common to Americans
abroad that his debacles went almost totally
unnoticed by the American media or public. Given his
cultural and educational background, he was
virtually programmed to make these mistakes. His
were simply larger and more public because he had
been granted more responsibility.
Of course, Sachs' biggest errors stemmed from the
occupational hazards of being an economist in the
late 20th century. Economics is an oddly evolved
profession that first appeared as a branch of moral
philosophy. It was not until the 19th century that
economics became a discipline unto itself. To remove
the taint of ethical dilemmas, economics became
increasingly reliant on the language of mathematics.
Math made economics appear less politically or
culturally driven. By the time Sachs learned his
trade, the great economic debates of history had
been buried beneath a tide of complex formulas and
computer printouts. This focus on math had made
economics, so economists would choose to believe,
more scientific than the rest of the social
sciences. Even the Nobel Prize committee, with
strong encouragement of the banking establishment of
Sweden, determined that economics was now scientific
enough to be included among the other science prizes
such as physics, chemistry, or medicine.
Because economics now assumes the existence of
everything else, economists tend to discount the
importance of the complexity of human experience.
With this worldview, cultural, historical, and
political motivations for human behavior are reduced
to messy but ultimately irrelevant details.
In 1945, American economists had been called on to
give advice to the utterly destroyed nations of
Japan and Germany. Judging by the post-war success
of these two economies, their advice must have been
superb. (Too damn good, in the opinion of many.)
This was the last generation of economists trained
before economics came to be considered a science.
"Quant jock" economists are caught in a trap of
their own making for they are forced by their main
assumption to translate the workings of the real
economy into the symbols of math. Reducing
everything to numbers means that such economists can
only track the flow of money, or other symbols for
wealth such as stocks and bonds. This is very
exciting for the "quant jock" because money moves so
rapidly-in fact, money now moves at the speed of
light from one point on the planet to another.
This assumption is flawed because the real economy
moves at a much slower pace. Folks can take years to
make major buying decisions like a house or car.
Moving factories requires months or years of
planning. Most importantly, the ability to invent
and build the nuts and bolts of the industrial
infrastructure takes generations to develop. For
example, Germany was unified by Bismarck in 1870 and
a conscious social decision was made that Germany
should overtake England in industrial capacity. It
took until just shortly before World War I in 1914
to pull even. Because of the destruction of two
wars, Germany's absolute superiority in European
industrial capacity did not clearly emerge until
around 1960. Ninety years is considerably more time
than it takes to wire some money somewhere. On the
quicker-than-a-hiccup time-frame of economic
assumptions, Sachs had peerless qualifications. What
did him in were the 90-year time-frame type problems
of economic development. In fairness, this problem
plagues the whole economic profession-especially in
the English-speaking parts of the globe, but Harvard
can legitimately be considered a main center of
fruit-fly-attention-span economics.
Another serious drawback to the economics of
tracking money, is that the only economic
transactions that can be tracked are at the point of
sale. According to this assumption, nothing happens
until money changes hands. That is why it is called
market capitalism. By this thinking, growing a tree
does not show up as an economic statistic worth
sending through a computer-it is only when the tree
is cut down and sent to market that it becomes
important.
This is a cultural assumption created by the
necessity of only seeing symbols. Unfortunately, an
economic worldview that can assume and then ignore
the creative natural forces that combine energy and
matter to grow a tree, is but a short cognitive leap
away from ignoring the creative forces of the people
who invent, build, and operate the real economy.
Even though Sachs had professional reasons to be
ignorant of the cultural, historical, and political
realities of the economies he was tinkering with,
his problems were made infinitely worse by the fact
that a generalized knowledge of these subjects is
not assumed to be important for the American
layperson.
For example, How could Sachs understand the Russian
comment that because of him, anti-American sentiment
had now reached heights not seen in Russia since
1921? In 1921, American troops in Russia were
assisting the White forces in their Civil War. How
could he know that?-few Americans, even history
professors, do.
Did he understand the passions involved in the tin
mining industry of Bolivia that caused Che Guevarra
to take his revolution there first? How could he?
Such news analysis does not appear on PBS, or the
New York Times.
Did Sachs understand enough of Marxism to have any
vague notion of what the Russians had been teaching
each other for the last 75 years? Of course not.
What American under the age of 50 knows anything
about Marxism? Certainly none in the Harvard
economics department. Even the parlor Marxists of
Harvard Yard have no conception of what it means to
be a Marxist while operating a coal mine or a
tractor factory.
In truth, outside of his narrow specialty of
tracking the flow of money, Sachs was utterly
unqualified to advise anyone on anything-especially
in a foreign setting. Acting with almost childlike
innocence, Jeffery Sachs caused violent chaos
wherever he traveled. In this case, the Ugly
American had been replaced by the Utterly Ignorant
American. Sadly, the damage done may last a
generation. And if the historic opportunity of 1989
is lost in Russia and the world becomes more
dangerous, the ignorance of Jeffery Sachs must be
considered a significant reason.
-----
regards
jon
web page at:
http://clear.lakes.com/~eltechno/