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Text File | 1992-08-28 | 4KB | 83 lines

                                                                                WORLD, Page 37

Rx for Russia: Shock Therapy


Why? Because, says Jeffrey Sachs, you can't cross a chasm in two
jumps

By GEORGE M. TABER


    The lines outside food stores in Russia grow longer and
longer, and the people standing in them grow angrier and
angrier. Two weeks after the Russian government ended price
controls on most products, the economic reforms of Russian
President Boris Yeltsin are under heavy attack. Last week 50,000
people crowded into Moscow's Manezh Square to protest price
increases and call for Yel tsin's resignation.

    The chanting was directed at the Russian President, but
the man behind the program is little known to the
demonstrators. He is Jeffrey Sachs, 37, a Harvard professor who
in the past seven years has emerged as the world's expert on how
countries can move from controlled to free economies.
Governments from Bolivia to Mongolia have called in Sachs to
help them cure hyperinflation and to bring their economies back
from the brink of disaster.

    But even Sachs, who serves as both a senior adviser to the
Russian Federation government and a member of a group of foreign
economists advising Yeltsin, has never seen anything like the
situation in Russia, where basic institutions like a central
bank hardly work. In December, Sachs and several foreign
economists met twice with Yeltsin, who told them that studies
he and his advisers had made of other economic reforms from
Poland to Chile had led them to conclude that nothing short of
shock therapy could rescue the Russian economy.

    That was just the sort of medicine Sachs has recommended
to a dozen governments. His best-known patient is Poland, which
two years ago adopted the so-called Sachs Plan, which
decontrolled the economy overnight after nearly half a century
of communism. The result has been both progress and pain. Stores
have plenty of goods on the shelves, and inflation, which had
been running at an annual rate of 2,000% in 1989, was down to
60% last year. But industrial output has plunged, and 2.1
million workers (12% of the work force) are unemployed. Not
surprisingly, political backlash is growing. Last week 2 million
Solidarity members staged a one-hour strike to demand a new
economic program.

    The boyish-faced, tousle-haired Sachs hardly looks like
someone who would make a practice of unleashing economic
revolutions. Son of a Detroit labor lawyer, he was a full
professor at Harvard at 29. Competition is the core of the Sachs
credo. Countries as diverse as Argentina under the generals,
Portugal under Salazar and the Soviet Union under Brezhnev, he
argues, condemned themselves to stagnation by opting out of the
competitive international economy.

    There are no half steps in Sachs' world. He says that a
gradualist approach of introducing limited market reforms into
a centralized system, as Gorbachev tried for years, is doomed
to failure. Sachs frequently cites the old Russian maxim that
you cannot cross a chasm in two jumps.

    Sachs is fully aware that his strong medicine is driving
people into the streets. Last week he called the Russian
situation "politically very risky." But he says the slower
approach that Yeltsin's critics advocate will only prolong the
agony without providing the benefits of a market economy. Sachs
notes that in cases like Bolivia and Chile, where shock policies
have worked, it took about five years "to make the changes so
widespread and visible that they became self-sustaining." But
will the Russian people -- and their politicians -- have that
much patience?