WASHINGTON:
Twenty-five years ago this autumn two remarkable events took place in
Washington.
On September 27th, 1989 in the musty embassy
ballroom of the Polish People’s Republic on upper 16th Street, Leszek
Balcerowicz, finance minister in the new non-communist government, outlined a
plan to transform Poland’s economy from communism to capitalism. Shock therapy
would be launched in three months.
Balcerowicz’s message was breathtaking. Prices would be decontrolled,
individuals allowed to start businesses, the survival of state enterprises determined
by the market. There was more-- the printing press would be shut down—halting
hyperinflation, the worthless Polish currency redeemed.
Financial journalists in Washington for the annual meeting
of the International Monetary Fund were astonished. Some sprang from their seats to file stories after the modest
man in the ill-fitting East European suit stopped talking. For those of us
remaining the room was electric. One reporter said, “there are lots of books
about transforming capitalism to communism, none for going the opposite
direction.”
This was six weeks before
the Berlin Wall came down.
On October 19th, 34-year-old Jeffrey Sachs, the Harvard
economist advising the Polish government, made an emotional plea to Washington
insiders. At a Willard Hotel dinner arranged by the Institute for International
Economics, Sachs said Poland required a cash injection to “leap across the
chasm” from disintegrating communism to capitalism. “The next six months,” he
said, “are critical in determining whether Eastern Europe’s first non-communist
government since World War II succeeds.”
Sachs had made his name by helping to end hyperinflation in
Bolivia. He essentially shamed his Washington audience into action, excoriating
the US government, the IMF and World Bank for dragging their feet. It was imperative, he said, that the
Polish experiment succeed.
The debate over big bang and shock therapy essentially began
that night.
Sachs had offered his services to Poland only weeks earlier
and was just off the plane from Warsaw where there was chaos and anger over
shortages of basic commodities, including food. Few outsiders thought the
planned reforms-- that in the short-term would further depress living standards—had
any chance of working. Sachs said later, "It was a terrifying and
unpredictable period."
The rest, of course, is history. Not only did the
Balcerowicz reforms stabilize and activate the economy, they won critical
public and government backing. They became a model for similar plans in
Czechoslovakia and the Baltics (where they worked) and in Russia (where they
failed).
What could not be foreseen in the autumn of 1989 was that
Poland would become the star performer of all the economies that emerged from
the wreckage of the Soviet empire. Poland’s return to growth and fiscal
discipline were powerful factors in the European Union agreeing to admit eight
former communist countries in 2004.
Balcerowicz, now 67, served as finance minister and then
central bank chief until 2007. Currently he teaches at the economics university
and runs his own research institute.
While Poland has not yet joined the euro currency zone, Balcerowicz
subscribes to the fiscal austerity doctrines championed by Germany. He faults
Greece and other southern periphery countries for not moving fast enough or
hard enough to restructure their uncompetitive economies.
The Polish miracle continues. Alone among European Union economies it did not experience a
downturn following the 2008 financial crisis. In most recent years Poland has
been the fastest growing economy in the EU. Its gross domestic product has
doubled since 1989 and is today Europe’s sixth largest economy.
More significantly, per
capita g.d.p. has more than doubled since 1989. This in a country of nearly 40 million, by far the largest
in Eastern Europe.
Poland and Germany—with a long history of conflict—have
become partners, demonstrated most recently by Chancellor Angela Merkel championing
the selection of conservative Polish Prime Minister Donald Tusk as the new president of the EU
council.
Reflecting on the 25th anniversary of
his reforms, Balcerowicz credits Sachs with playing a vital role in persuading
the Solidarity-led government that shock therapy was the best way forward. For
his part, Sachs
says he is "thrilled that the Poles acquitted themselves so beautifully in
the pages of history."
