“Jeff Sachs is like the March Hare in Alice in Wonderland, moving from cup to cup. He can never return to any country that headvised, since they all hate him.
It happened in Latin America, in Slovenia, in Poland, a few of the Baltic States, and it was the same in Russia. They maintain that he was of no help and that his advice was wrong. He is a bright and brilliant man and I like him very much, but his public campaign has nothing to do with what he was actually doing. Just nothing.”
Jeffrey D. Sachs, the peripatetic “world-renowned economist” who, for over three decades, has been called upon by leftist billionaires, governments, and international organizations to reshape the economies of entire countries and regions, is both the luckiest and the unluckiest of men.
In his own estimation, the unintended consequences that have dogged his long career of advising distressed areas—from Bolivia to Eastern Europe to Russia to Africa—can be laid at the feet of his critics and faint-hearted foreign collaborators along with a shortsighted American foreign-policy community and the institutional failings of a tight-fisted and purblind IMF.
Sachs, a devoted disciple of John Maynard Keynes, got his start as a self-advertised free-market transition specialist when he signed on as an advisor to Bolivia in 1985 (one year after he became a tenured professor of economics at Harvard), and he first gained notoriety with his claim that he “helped Bolivia to negotiate a debt cancellation agreement with its major bank creditors, which became a template for later debt-cancellation operations.”
Though the banks were said to have suffered a smallish haircut (Sachs never did report the actual amount forgiven), the publicity opened doors down Latin America way. Sachs was soon hobnobbing with “leaders from Argentina, Venezuela and Peru.”
Sachs’s advice to Bolivia was to fight hyperinflation by the tried-and-true method of shutting down the central bank’s printing presses. This inadvertently caused the Bolivian tin market to collapse and energy prices to rise tenfold within days, thereby accelerating Bolivia’s transformation into a “cocaine republic,” as the tens of thousands of newly unemployed sought work in the last sector of the economy that showed any vitality: coca farming. Sachs was back in Cambridge, Massachusetts, before any serious critics appeared. Who knew anything about Bolivia anyway? Who cared?
Fortune smiled on Sachs in 1989 when Krzysztof Krowacki, an official in the Polish embassy in Washington, met with him in his Harvard office to ask if the advice Sachs was giving Latin America might be relevant to Poland, which was in a debt and inflationary spiral of her own. His government, Krowacki said, wanted to make reforms. Would Sachs help?
In his book The End of Poverty: Economic Possibilities for Our Time (2004), Sachs writes that he told Krowacki he would not work for communists, and that he would consider becoming involved only when the martial-law government legalized Solidarity and lifted the house-arrest order placed on Lech Walesa. The passage marks an annoying feature of all of Sachs’s books, which is the ultracareful positioning of himself in the ongoing action he describes. The man is a walking billboard for the tiresome “virtue signaling” of contemporary liberalism.
Four weeks later Krowacki telephoned to inform Sachs that the government had decided to legalize Solidarity, and that was enough to get Sachs to make a one-day visit to Warsaw at the tail end of a trip to a Moscow conference in April 1989. When George Soros called several weeks later to ask if Sachs would accompany him on a trip to Warsaw to meet with both Solidarity and government officials, he was out the door like a shot. At the conclusion of the trip Soros agreed to finance a reform team under Sachs’s leadership through his newly formed Stefan Batory Foundation.
With money in the company tank, Sachs contacted David Lipton, a former student, coauthor, and partner in their Cambridge-based consultancy, Sachs & Associates, who was then working at the IMF. Thereafter, it was full-speed ahead to seduce Solidarity’s leading strategists, who, as men of politics and not of economics, were soon mesmerized by Sachs’s palaver and repeated assurances that his reforms “would work,” his insistence that they had the public behind them, and that now was the time to act. To ensure his team’s authority, he managed to obtain a billion-dollar Polish zloty-stabilization fund by boldly working a loose contact to Poland-friendly Republican Sen. Bob Dole, which got him a meeting with Brent Scowcroft and other George H.W. Bush administration officials. And he worked successfully to have $15 billion of Poland’s $40 billion in foreign debt forgiven.
Success misled Sachs. First, he attributed the debt relief to his own efforts, and not to Poland’s importance—as a wedge between Germany and Russia—to the U.S. empire. Poland was never going to be allowed to fail.
Working with Deputy Prime Minister Leszek Balcerowicz, Sachs shilled for what would become known as the theory of “shock therapy,” a souped-up, high-speed IMF-type program for transforming command economies into “free markets.” Shock therapy requires several significant actions to be taken simultaneously: making the currency convertible, eliminating subsidies, decontrolling prices, privatizing industry, and removing restrictions on imports—the costs of which are to be underwritten by massive infusions of First World capital. It was Bolivia all over again, and not, as Sachs had envisioned, the Wirtschaftwunder of 1948 in capitalist Germany. The cracks in shock therapy’s promised market utopia appeared quite quickly, and, just one year later, Sachs’s Polish friends let him know they’d be glad to see the back of him.
Sachs and his reform team found themselves among the horde of competing foreign consultants then swarming over the whole of Central and Eastern Europe, each with its eye on the grand prize: Russia. Having picked up light work advising Latvia, Lithuania, Hungary, and Slovenia, Sachs and Lipton came up short when Slovenia refused Sachs & Associate’s $300,000 billing. By the early 1990’s, Central Europeans had learned that, as one state official put it, “We are just solving your employment problem, not ours.”
The Hoover Institution’s Michael Bernstam, who was advising the Supreme Soviet, remarked, “It was just a joke, a meaningless appointment, but advising foreign countries was sexy! Very fashionable, like Hollywood. The super ambitious were academic Lotharios and not having some country to advise, well, it was the same as Don Juan without a beautiful woman on his arm.”
In May 1991, Bernstam encountered Sachs at a dinner party and later recalled, “Sachs had actually gotten in late and there weren’t so many countries. Poland wasn’t too happy with him, and when I asked him about it, he started telling me how he was leaving shortly for Mongolia, a vast wasteland where nomads live in tents or yurts constructed of animal hides.”
Still, business wasn’t too bad for Sachs, not with the tremendous opportunities for self-advertisement his patron Michael Weinstein was providing on the editorial page of the New York Times. He and Lipton had managed to top up Soros’s foundation funds with grants and monies from the Ford Foundation, the Finnish government, a Japanese foundation (Sasakawa), and the United Nations, thereby keeping their freelance reform and aid-advisory shop, Sachs & Associates, cooking.
In the wake of the August 1991 coup attempt, Moscow filled with “aid tourists” from international agencies, punters of every sort, and consultants hungry for government contracts. In the fall and winter of 1991-92, Sachs found himself fighting it out alongside his compatriots from the Harvard Institute of International Development (HIID) for the pole position.
Having aligned his team with Yegor Gaidar, who proved to be just the right man once he was named Yeltsin’s first deputy prime minister, Sachs’s successful recommendation of two key policies in the first quarter of 1992 ensured that the course of Russian reforms would be disastrous.
Many Americans think that World War II was what pulled the United States out of the Great Depression. Not true: It was the large stock of personal savings Americans had accumulated over years of war-rationing, when there was hardly anything to buy. Those savings were combined with the federal government’s deficit spending and the aspirations of millions of G.I.’s returning home anxious to restart their lives; they married, bought houses and cars, had children, established households and businesses, and otherwise invested. America rocked, and a healthy, growing, property-owning middle class reemerged.
Long after V-E Day and Potsdam, the Soviet economy remained focused almost entirely on the defense sector, leaving little for the people to buy. Consequently, at Cold War’s end the Russian people had accumulated a large stock of savings and were in a position not entirely unlike the one Americans had found themselves in during the late 1940’s.
Characterizing the Russians’ national savings as an “overhang,” as Sachs and his Swedish associate Anders Åslund did in editorial after editorial, helped to confuse the issue. This was to the West’s advantage: If savings could be turned from something good into something scary—an “overhang”—then those savings might be destroyed by inflation, just at the time when they should have been used to give Russians a fair share of equity in their country’s means of production. In one fell swoop, private property might have been made widely available to the population, avoiding a Latin American situation of concentrated ownership. Market formation then would have had a basis on which to develop broadly, and the people a reason to support their new government.
Sachs saw things differently, and he let the cat out of the bag in a moment of candor shared with Michael Bernstam and his wife. It was his and Yegor Gaidar’s intention, Sachs said, to remove from the market all “competing claims”—i.e., the people’s savings.
On January 2, 1992, Boris Yeltsin (at Gaidar’s and Sachs’s urging) abolished government price regulations throughout all of Russia, ensuring that in Russia’s monopolistic economy the producers would raise prices without restraint. The subsequent 2,500-percent inflation in 1992 consumed the dreaded “ruble overhang,” thereby leaving foreign and Russian criminal wealth to exploit the new market. The subsequent 1993-94 voucher privatization for small- and medium-sized businesses was so crudely designed that analysts would later conclude that Russia’s alcoholics, who immediately traded their vouchers for vodka, had actually gained the most value.
But back in 1991, Sachs and the HIID people were not the only bold folks in the race for the spoils. Goldman Sachs, in what would prove to be co-chairman Robert Rubin’s bright and shining moment, was present, too. The Goldman Sachs of 1992 was not the giant squid suffocating humanity that it is today. It was a private investment-banking partnership, which meant the firm’s backing was the partners’ private fortunes. No set of regulations any government might devise and impose on finance and banking will ever function as efficiently as the possibility of a banker losing his own money.
While Anatoly Chubais, the deputy prime minister of the Russian Federation, and Sachs’s team were kicking around ideas for a national privatization program in Russia, the Committee on Foreign Investment, which Gaidar had established under Leonid Grigoriev, engaged Goldman Sachs to handle the privatization of large enterprises—the very assets that would eventually be handed out to insiders in 1995’s infamous loans-for-shares privatization.
Bill Potvin, chief of Deloitte & Touche’s Moscow office, said Goldman Sachs thought the commission had given the firm a mandate and sent in 30 people to mine the deal: “It was a strategic mistake. Goldman bought full-page ads in the Financial Times and hired Cleary Gottlieb, a big white-shoe law firm. Critically, Goldman Sachs wanted to go deal by deal.”
Sachs and the HIID people were appalled. If Goldman was running privatization of the cash-gushing natural-resource firms on a slow-moving, careful, deal-by-deal basis as Russia’s contracted agent, what power, glory, influence, and riches would there be for them and their Western sponsors?
The HIID principals Anatoly Chubais had put on GKI (the privatization committee) quickly went to work to undermine Rubin. “Jeffrey Sachs was not on that mission, but [Maksim] Boyko was his protégé. There was quite a debate at that time, well, it was a real fight between Goldman Sachs and Jeffrey Sachs. Sachs versus Sachs. Jeffrey Sachs said throw the whole thing to the market, mass privatization would be ‘more academically interesting,’” Potvin said, explaining why a photograph of Robert Rubin alongside Yegor Gaidar and Leonid Grigoriev announcing the deal had appeared in all the right newspapers, only for Rubin then suddenly to vanish.
“Afterward, the Foreign Investment Commission was disbanded, and Grigoriev was sent to the World Bank to get him out of the way,” Potvin added. “The entire business was a huge embarrassment to Goldman.”
And a huge loss for Russia. Had the arrangement with Goldman Sachs been allowed to stand, Goldman’s fiduciary obligation would have been to the Russian state. Instead of savvy, purposeful professionals whose very business would be to find qualified large investors and who could have best negotiated workable terms to protect investors’ capital and the value of the Russian people’s legacy within the boundaries of what Russia was willing to agree to, the Russians got Jeffrey Sachs’s and the HIID contingent’s fraternity of academics and graduate students, who were legally obligated to USAID and not to Russia. Thereafter, any chance of positively transforming Russia was lost, as shares-for-loans would prove.
In the December 1993 parliamentary elections, a furious electorate let the government and the foreigners know just what they thought of Yeltsin’s August 1993 bombing of the Russian parliament (and of his Duma adversaries within, who were demanding a rollback of Chubais’s criminal privatization). The communists and nationalist Vladimir Zhirinovsky’s Social Democrats triumphed, the West’s “eager young reformers” earning the support of no more than 15 percent of Russian voters.
Sachs and Åslund resigned their much-disputed “official” positions and decamped to Ukraine in January 1994. (When reporters asked Prime Minister Viktor Chernomyrdin about their resignations, he had to inquire as to who they were, as he’d never heard of them.) Joined by George Soros in Kiev, the three men went to work establishing a shared office. They then began a years-long lobbying campaign for congressional funding to establish an HIID office in Ukraine under their control. Once funded, nothing much came of the effort, since USAID’s bumbling self-dealing was outclassed by that of the natives. Still, topping up HIID coffers with another big bag of U.S. taxpayers’ money didn’t hurt in getting Sachs a 1995 appointment to head up HIID in Cambridge, Massachusetts.
Sachs had once more gotten his career back on track, despite the bad publicity and complaints HIID’s Moscow reforms were beginning to attract. Before long, the position would prove a poisoned chalice when a GAO audit of HIID’s Moscow operations brought the roof down on the Harvard Institute. Though Sachs had nothing to do with HIID’s conflicts of interest in Moscow (he was never accused) the scandal and subsequent court proceedings would fill the headlines and a string of reports for the next eight years; as the head of HIID, Sachs would have to see his name appearing in each one. The exposure of HIID’s dark deeds worked to liberate Sachs’s critics, and the results of his own work came under scrutiny from his leftish political allies.
Sachs remained at his post and moved to Harvard’s Center for International Development when the university folded HIID’s operations into it. In those years, Sachs turned his attention to Africa and began beavering away at developing what he calls “clinical economics,” which emphasizes public healthcare, social services, national safety nets, microlending to the poor, etc. While polishing up his “expert” credentials with intense study, Sachs got lucky again when the most perfect beard imaginable—one who would assuage his disappointed admirers and fuel his comeback—dropped seemingly from the heavens into his lap.
That beard was Bono, the activist singer of U2, whose campaign on behalf of Jubilee 2000 for the cancellation of the least-developed countries’ debt to the rich countries led to Bobby Shriver (of the Kennedy clan) suggesting that Bono meet with Sachs. The two men traveled across Africa together, aiding and abetting each other’s projects. Thus was the rock-star economist born.
Suddenly, Sachs had what few economists can claim: a brand-new coterie of really good-looking and celebrated youth icons like Angelina Jolie, whose Diary of Angelina Jolie & Dr. Jeffrey Sachs in Africa aired on MTV. What university professor could ask for more?
Jeffrey Sachs could, and did.
In 2002, Sachs got the plum job of director of Columbia University’s new Earth Institute, a reportedly $500,000 annual salary, and an appointment as special advisor to U.N. Secretary-General Kofi Annan. He also achieved the status of best-selling author after his 2004 tome (with an admiring Introduction by Bono) sold hundreds of thousands of copies. To top off one sweet deal, Columbia provided Sachs with an eight-million-dollar townhouse on Manhattan’s Upper West Side. Apparently, nothing was too good for the university’s newest rainmaker.
The good news just kept coming. George Soros and others financed his Millennium Villages Project, which seems to have amounted to not much more than the creation of a land-based archipelago of cargo-cult hamlets that depend on continual infusions of donated capital.
In time, the Hollywood set drifted away, but they were replaced by a truly celestial partnership with the Holy See, which was financed once again by George Soros. Abortion advocate Jeffrey Sachs, to the consternation of many Catholics, was named an advisor to Pope Francis on climate change and healthcare, and began conducting classes at the Vatican.
While thumbing through Sachs’s oeuvre recently, I began to appreciate why each student of his I have randomly encountered over the years was an enthusiast for his former professor. Sachs writes well, and he has a unique ability to inspire pain-free idealism in the Ivies’ privileged students through missionary-like, call-to-service exhortations.
Whatever reinventions lie ahead for Professor Sachs, he’ll land on his feet. But the man’s highest calling is to the classroom: The subject he was born to teach is Personal Branding 101.
Reprinted with the author’s permission.