Poland's Jump to the Market Economy
Shock therapy argued by one of its architects.
Summary
Jeffrey Sachs advised the Polish government during its 1990 stabilisation, and this short book, based on his Lionel Robbins lectures, is his defence of the programme. It is the clearest available statement of the case for rapid transition made by one of its architects.
Sachs argues that Poland faced hyperinflation, shortages, a collapsing state distribution system and an unpayable foreign debt, and that gradualism was not available as an option. The programme he supported, implemented under finance minister Leszek Balcerowicz from January 1990, freed most prices at once, eliminated most subsidies, made the currency convertible at a unified rate, imposed a wage control mechanism to prevent an inflationary spiral, and opened the economy to imports. He argues that the recorded output collapse substantially overstated the real fall, because Soviet-era statistics counted unwanted production and because new private activity went unmeasured, and that Poland's rapid return to growth from 1992 vindicated the approach.
He also argues, and this became a persistent theme of his later work, that Western debt relief and financial support were essential and were provided too slowly and too grudgingly. The book is advocacy from an interested party and is contested by economists who favoured gradualism and by those who point to the unemployment and social costs. Poland's subsequent record is the strongest evidence in Sachs's favour; the outcomes in Russia, where he also advised, are the strongest evidence against generalising from it.
Key takeaways 7
- Poland's starting conditions in 1989 included hyperinflation and a collapsing distribution system, which removed gradual reform as an option.
- Freeing prices at once ended shortages immediately, which was the programme's most visible and least disputed effect.
- Currency convertibility at a unified rate eliminated the black market premium and made trade prices meaningful.
- Recorded output collapse overstated the real decline because Soviet statistics counted production nobody wanted.
- Sachs argues that debt relief and Western financial support were necessary conditions and were provided too slowly.
- A wage control mechanism was needed to prevent state enterprises from converting price liberalisation into a wage-price spiral.
- The political window for radical reform is short, and reforms not made in the first months become impossible.
Who should read it
Readers who want the case for shock therapy stated by its most prominent advocate, applied to the case where it worked best.
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Chosen by shared topics, the entries that hold them, and the people who recommended both.
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Where it sits in the reference 2
Topics