Rx For Russia: Shock Therapy

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 Yeltsin'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?