Atelier 18, article 6

© Who is J. Sachs?
by Public Policy Network - Posting to

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".

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.

There is also info on this in Sachs' own books:

1. Sachs, Jeffrey and Juan Antonio Morales. (1988). Bolivia 1952-1986, San Francisco: International Center for Economic Growth.
2. Aaslund, Anders, Jeffrey Sachs (1993). Changing the Economic System in Russia, London: Pinter Publishers Ltd.

For Jeff Sachs 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
by Jonathan Larson

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.

Public Policy Network - PUBPOL-L
Commands to: