The Idealist
Jeffrey Sachs and the Quest to End Poverty
Written by Nina Munk

The Idealist Category: Social Science - Developing & Emerging Countries; History - Africa - General; Business & Economics - Development - Sustainable Development
Imprint: Anchor
Format: Trade Paperback
Pub Date: October 2014
Price: $16.95
Can. Price: $0.00
ISBN: 978-0-7679-2942-4 (0-7679-2942-X)
Pages: 288


Part One

Maybe it’s having had the good experience of hearing, as I have many, many times, “Impossible, impossible, impossible, impossible, impossible—obvious.” If you’ve gone through that over a period of twenty-five years, it helps you to filter out a lot of what you’re told. Everything seems impossible until it becomes inevitable.

—Jeffrey Sachs

Chapter 1

Shock Therapy

As a young child growing up in Oak Park, Michigan (“The City with a Future”), Jeffrey David Sachs displayed a preternaturally brilliant mind. At twelve or thirteen years of age, in middle school, he won a mathematics contest for gifted children, with the result that he spent the summer taking college-level math courses at Oakland University in Rochester, Michigan. As a teenager, he was single-minded, ambitious, and from all reports, unusually self-disciplined. He played in adult tournaments at the local bridge club. Once, not uncharacteristically, when a high school teacher assigned a five-page essay, Sachs handed in forty pages. “He never had a rebellious day in his life,” according to his sister, Andrea Sachs.

At Oak Park High School, Jeffrey Sachs was elected president of the student council. In his senior year, he got near-perfect scores on his SATs. Unsurprisingly, he was named class valedictorian when he graduated in 1972. Nothing less was expected of him. “His father was extremely bright and was top of his class,” said his mother, Joan. “We just assumed our children would be the same.”

Sachs’s father, Theodore, was a legend in Detroit. A labor and constitutional lawyer who successfully argued several cases before the U.S. Supreme Court, Ted Sachs was said to have one of his generation’s finest legal minds. He was stunning in the courtroom and was admired for his commitment to social justice. While arguing his most important case before the Supreme Court, Scholle v. Hare, Ted Sachs helped establish the principle of “one man, one vote” for legislative apportionment. “Sachs not only fought against precedent but against legal inertia,” according to a 1962 Detroit News article about his victory in the case: “Sachs seems to have anticipated his- tory, sensed impending change in the attitude of the courts, and to have worked industriously for a cause that more experienced lawyers long ago had abandoned.”

It was taken for granted that Jeffrey Sachs would attend his father’s alma mater, the University of Michigan, and that he too would become a lawyer. In the worst case, his family imagined, he’d become a medical doctor. Instead, when he was seventeen years old, he left Oak Park to study economics at Harvard University.

Martin Feldstein, the well-known economist and a longtime professor at Harvard, remembers meeting Sachs for the first time. “I was teaching the graduate macroeconomics course,” he recalled. “And he came along—remember, he’s a second-year undergraduate, so he’s about nineteen years old—and he says ‘Well, I’d like to take your course.’ ” Warning Sachs that he was an unforgiving and demanding teacher, Feldstein discouraged him and advised the young man to stay away from trouble. “I’ll take my chances,” replied Sachs.

Sachs received an A in Feldstein’s class. “He was one of the very best performers in a course where he was competing with the best graduate students in the country,” said Feldstein. “It was clear from that point that this was a very unusually talented young man.”

On earning his undergraduate degree, summa cum laude, from Harvard in 1976, Sachs was ranked third in his class of 1,650 students. During his graduate studies at Harvard, which he completed in record time, he was elected a Harvard Junior Fellow, an honor reserved for “persons of exceptional ability, originality, and resourcefulness, and . . . the highest calibre of intellectual achievement.” A scant three years after being awarded his Ph.D. in economics, with a focus on international macroeconomics, Sachs was granted tenure and made a full professor at Harvard. It was 1983, and he was twenty-eight years old.

It was at Harvard, at a screening of The Sorrow and the Pity, Marcel Ophüls’s four-hour documentary about life in France during the Nazi occupation, that he met his future wife, Sonia Ehrlich. “In the beginning, Jeff would say, ‘Wait until I finish my undergrad thesis,’ ” Ehrlich said, describing her husband’s single-mindedness. “Then it was ‘Wait until I get my Ph.D. thesis’ and ‘Wait until I get tenured.’ Then it was ‘Wait until I finish my first book.’ Then Bolivia came up.”

In July 1985, when he was thirty years old, Jeffrey Sachs was invited to the Andean mountains of La Paz, Bolivia, to act as an adviser to the country’s president, Victor Paz. Desperately poor and chaotic, Bolivia, with its annualized inflation rate of 25,000 percent, was spiraling out of control. Among other problems, the country was spending far more than it could afford. To finance such runaway spending, the government kept printing more and more pesos; the more pesos it printed, the more worthless its currency became. Bolivia was a textbook case of hyperinflation, the likes of which no one had seen since the early 1920s, in Germany’s Weimar republic.

Sachs had never worked outside academe. Nevertheless, as Gonzalo Sánchez de Lozada, who was then Bolivia’s president of the Senate and the nation’s official economic adviser, explained, Sachs had a rare skill for translating theory into practice, a talent for explaining and selling his ideas to people who knew nothing about economics. “I was twenty-five years older than he was, and our president was eighty years old,” recalled Sánchez de Lozada, “but Jeff always seemed to be an equal because he was very forceful, and very convincing, and he just made a lot of sense.”

Consulting studies of hyperinflation and drawing on his academic training, Sachs designed a radical austerity plan to jump-start Bolivia. It called for huge cuts in government spending, massive layoffs of state employees, the end of fixed gasoline prices, a complete overhaul of the tax system, and above all, an abrupt shift to a free-market-based economy. With the country in disarray, the government of Bolivia agreed to follow Sachs’s advice. It had few other options. “We couldn’t get any support from the International Monetary Fund, or the World Bank, or the U.S. government, or anybody, because we’d been written off as a basket case,” said Sánchez de Lozada. “We were in the hands of Jeff Sachs.”

Sachs’s plan for Bolivia was pragmatic and impersonal—hundreds of thousands of people lost their jobs, their pensions, their dignity—and yet the plan worked, at least in the short term: strict fiscal and monetary discipline managed to lower the country’s annual inflation rate to about 15 percent. “Shock therapy,” as the approach was later called, was to become Sachs’s trademark.

From Bolivia, Sachs went on to Poland. It was 1989, and the Berlin Wall had just come down. With the abrupt collapse of Communist rule, Eastern Europe was in chaos. In Poland, where the new Solidarity government had taken over, the economy included black markets, soaring prices, an extreme shortage of goods, and a worthless currency.

George Soros, whose foundations promoted the transition to democratic market economies in Central and Eastern Europe, arranged for Sachs and his former student David Lipton to meet Jacek Kuro´n, the Polish intellectual known as “the brains behind Solidarity.” Sachs’s description of that meeting is one of the more remarkable passages in The End of Poverty. No one doubted Sachs’s intelligence; what became obvious in Poland, however, was his supreme self-confidence.

Kuro´n sat at a crowded desk in a room filled with books piled high on the table and everywhere else. He took out the first of many packs of cigarettes that he would smoke that evening, and a bottle of alcohol. . . . He smiled and said, “Okay, so why are you here?”

“Well, I was asked to see you to talk about how Poland can get out of this mess.”

“Okay, then,” he replied . . . , “what do you say?”

I started weaving a story about what economic reforms in Poland might really mean. I said that Poland needed to become a “normal” country again with a “normal” economy. . . . I continued to improvise, sketching out an economic strategy for Poland’s return to Europe, drawing a bit on my experience in Bolivia, since that country had “returned” to the world economy after decades of self-imposed protectionism. I also compared Poland’s situation with that of Spain’s and Portugal’s in the 1970s, after their long periods of military rule under Franco and Salazar, respectively. . . .

Every couple of minutes Kuro´n would hit the table and say, Tak, rozumiem! Tak, rozumiem!—“Yes, I understand! Yes, I understand!” Smoke was filling the room, and the bottle kept pouring. I talked and talked, probably for another three or four hours. I was drenched in sweat. I do not know how many packs of cigarettes he smoked that night, each stub being crushed into an ever filling ashtray. At the end of the evening, he said, “Okay, I understand this. We’ll do it. Write a plan.”

I thought to myself, “This is exciting. He liked the ideas.” I said, “Mr. Kuro´n, we will go home and fax you something within a week or two about these ideas.” He hit the table. “No! We need the plan now.” I said, “What do you mean?” “I need this tomorrow morning.”

It was midnight when Sachs left Kuro´n’s apartment. Borrowing an old computer at the offices of Gazeta Wyborcza, the Solidarity newspaper, Sachs and Lipton worked until dawn. They wrote a fifteen-page, single-spaced memo (“Summary of the Proposed Economic Program of Solidarity”) advising the new government how to jolt Poland out of socialism and into a market economy. “This strategy can be called a ‘shock’ approach to Poland’s economic crisis, in contrast to the [current] muddling-along approach of the Coalition Government,” begins the memo.

Page after page, Sachs and Lipton outlined “the nuts and bolts of stabilization.” Their plan was straightforward—an updated version of the model Sachs had developed for Bolivia: a convertible hard currency, a stock exchange, a commercial banking sector, the privatization of state enterprise, the end of state subsidies and central planning, a brand-new tax code, the free exchange of goods, the recognition of private property, a balanced state budget . . .

“One of the most spectacular and spectacularly risky macroeconomic experiments ever undertaken,” is how the so-called Sachs Plan was described by Lawrence Weschler, a staff writer for The New Yorker and an expert on Poland’s Solidarity movement. Many informed Poles agreed with Weschler’s assessment. “Polish shock therapy has been described as a dive off a high tower without knowing if there was any water in the pool,” said Maciej Kozlowski, a Polish diplomat and historian. “Jeff Sachs was the one assuring us that there was water in the pool.”

While acknowledging that the “shock program will cause disruptions in the short run and no doubt pain for some in the society,” Sachs and Lipton argued that the country had no choice. For Poland to follow a path of moderate, gradual change would be a “pure, unmitigated disaster,” predicted Sachs. “In any event,” concluded his and Lipton’s memo, “there is no viable alternative. Unless Poland jumps to a market economy, the current misery and chaos will surely continue.”

In an interview with Weschler, Sachs compared himself to a trauma doctor who arrives in the nick of time to resuscitate the patient. “Look, when a guy comes into the emergency room and his heart’s stopped,” he said, “you just rip open the sternum and don’t worry about the scars that you leave. The idea is to get the guy’s heart beating again. And you make a bloody mess. But you don’t have any choice.”

When the Sachs Plan was finally implemented in Poland, it followed the authors’ road map and timetable almost to the letter. Sachs, now thirty-five, had become an international star in policy circles—a “wunderkind,” the media liked to call him. Widely considered one of the most promising economists of his generation, he was presented with the 1991 Frank E. Seidman Distinguished Award in Political Economy. Some people considered him the most influential economist since John Maynard Keynes. He was a “virtuoso,” according to The New York Times: along with two other young and ambitious Harvard-trained economists, Paul Krugman and Lawrence (“Larry”) Summers, Jeffrey Sachs was one of the “three whiz kid economists of the 90’s.” The New York Times Magazine went even further, referring to Sachs as “probably the most important economist in the world.”

Not everyone agreed. Increasingly, in academic circles, at least, Sachs was being written off as an exhibitionist, a show-off. “He was clearly capable of doing pretty important work, but I don’t think he did it,” the influential Harvard economist Robert Barro told a reporter in 1991. More recently, when I interviewed him, Barro elaborated: “I mean, Jeff had some good articles, but he didn’t have stuff that was of real permanence and brilliance. Nothing that matches the potential he had when he was, say, twenty-eight.”

Throughout the 1990s, Sachs was still a professor at Harvard, lecturing to students and writing papers and books at an astonishing pace, but academia was starting to bore him. It was parochial, inbred. Whereas advising world leaders, shaping a nation’s economic policy, changing the course of history—that was intoxicating. “My colleagues, they’d say, ‘Well, it’s great what you’re doing, but you should focus on your work.’ And I said, ‘But this is my work,’ ” Sachs recalled. “I would have been perfectly comfortable as an academic at Harvard if I hadn’t seen what was actually happening in the world.”

In the early 1990s, at the invitation of Boris Yeltsin, Sachs intended to straighten out Russia’s economy. He found himself at the Kremlin on the very day that Yeltsin announced the end of the Soviet Union. “I said, ‘Gee, you know, this is once in a century,’ ” Sachs recalled. “  ‘This is the most incredible thing you can imagine; this is a true liberation; let’s help these people.’ ”

Together with a dozen colleagues from the Harvard Institute for International Development, he settled into an office at Moscow’s Ministry of Finance and got to work. Characteristically, his approach to Russia’s economy was defined by a combination of optimism and impatience. “If Poland can do it, so can Russia,” he declared.

Broadly speaking, Sachs’s plan for Russia mirrored his plan for Poland: it was shock therapy writ large. “As a broad measure,” he explained at the time, “the Soviet republics should also follow the three pillars of privatization, liberalization, and stabilization. The ruble, like the Polish zloty, could become a convertible currency within months. Almost no Russian economist believes that, but they’re wrong. It was not believed in Poland either. They can create a working monetary system, they can create the normalcy of markets, free prices and supply and demand. The basic strategy can work.”

In hindsight, Sachs was naïve. For one thing, he’d underestimated the extent of the problem. He’d misread it. Presuming that his program of economic reform could be imposed on Russia as easily as it had been imposed on Bolivia and Poland, he was defeated by a massively bloated and corrupt economy. In one decade, between 1989 and 1999, Russia’s GDP dropped in half. State assets were systematically looted, and anything of value—raw materials, for instance—wound up in the hands of a few clever men.

In a scathing 1999 speech, delivered when he was chief economist for the World Bank, Joseph Stiglitz argued that the failure of reform in Russia was due to “a misunderstanding of the very foundations of a market economy”; “a failure to grasp the fundamentals of reform processes”; and “an excessive reliance on textbook models of economics.” Sachs wasn’t mentioned by name, but he didn’t have to be. “Not surprisingly,” said Stiglitz, “those who advocated shock therapy and rapid privatization argue that the problem was . . . that there was too little shock. The reforms were not pursued aggressively enough. The medicine was right; it was only that the patient failed to follow the doctor’s orders!”

In fact, concluded Stiglitz, alluding to Sachs obliquely, “Those advocating shock therapy, with its focus on privatization, failed because they failed to understand modern capitalism; they were overly influenced by the excessively simplistic textbook models of the market economy.”

Years after the fact, when I questioned Sachs about his failure to reform the Russian economy, he became defensive, prickly, like a hedgehog. “Do I consider Russia a failure of the West? Yes, definitely. Do I consider it a personal failure? No! I find that absolutely preposterous!” he insisted. He’d been blindsided, I inferred, or else his timing was off, or he’d been undermined. “I don’t understand why somebody doesn’t ask Robert Rubin, or ask Dick Cheney, or ask Larry Summers, or ask anybody who actually had power at the time about it.” He was fed up with my questions about Russia: “It’s preposterous by now, and tired. And it’s tiresome, and it’s a tired question, and it’s absolutely absurd.” With that, he stood up and walked out of the room.

Later, in a long e-mail, he took the same tack: “I took a ridiculous amount of criticism for Russia, even though I was not the adviser, not empowered, and my ideas were not adopted. The true actors in this case—the Bush Sr. Administration (especially Cheney), the Clinton Administration (Rubin, Summers, others), the IMF, and others—got a free walk. Ridiculous. I constantly warned that we should be doing more and [doing it] differently. Nobody wanted to hear it.” His failure to resuscitate Russia was due, he explained, to “the triumph of politics over economics.” In other words, no one followed his advice.

Jeffrey Sachs’s crusade to eradicate extreme poverty began in 1995, when, for the first time, he traveled to sub-Saharan Africa. “I was asked to visit Zambia,” he said, “and that was the first place I really saw AIDS, and the first place where I really saw malaria, and the first place where I really started asking myself, ‘What the hell is going on here?’ I hadn’t realized that we were leaving so many millions of people to die every year. I had no idea.”

Africa was being ravaged by fast-moving epidemics of AIDS, tuberculosis, and malaria. Everywhere on the continent, health care systems—exhausted, chronically underfunded—had collapsed. There were severe shortages of doctors and nurses, of medicines, even of such basic supplies as surgical gloves and IV fluids. Sachs was outraged. “I really had this sense that things were spinning out of control,” he continued. “I’d say, ‘What do you mean he just died last week? Did he go to the doctor?’ And they’d say, ‘No, no, no, people don’t go to the doctor here.’ What do you mean? What about the medicine? And they’d say, ‘No, no, no, there’s no medicine here.’ What?!”

What Sachs saw in Africa defied logic and offended his sense of human decency. Since the industrial revolution, the West’s per capita income had increased twentyfold, whereas in Africa, over the same period, per capita income had increased not even fourfold. Why, at the most prosperous time in human history, was so much of our planet impoverished? Why were millions of human beings dying every year from diseases that we learned to prevent and treat a generation ago?

Earlier in his career, when he was thinking about ways to improve people’s lives, Sachs had been convinced of the power of open markets, free trade, deregulation, privatization, and fiscal discipline. After his first trip to sub-Saharan Africa, however, he started looking at the world with new eyes. You might call it a spiritual conversion, a change of heart.

“Economists say, ‘Reform the value-added tax. Get the budget deficit down. Open the borders,’ ” Sachs told a reporter in 2000, distancing himself from other economists. “That’s great stuff if you happen to be Poland. But it’s not the answer if you happen to be Tanzania, where you’re suffering holoendemic malaria, schistosomiasis, and everything else you can imagine.”