Polish transformation story of 1989 - Jeffrey Sachs lecture - Part II: “What should we do Mr. Sachs?.”

Łódź, Poland, 6th of June, 2014 - Jeffrey Sachs lecture
co-organizer of the event: Zbigniew Galar

Part II: “What should we do Mr. Sachs?.”

“What should we do Mr. Sachs?.”
And I said: “Well if you want to be a normal country you need a normal currency. You need to be able to trade. You need to be able to have supply and demand so there it’s not shortages everywhere. You need to be able to start a business and so on…”
“Well, how long will that take?”
That’s where I said: “Those basics can be done almost immediately.”
That was the radical idea, that you could start a market economy very quickly. The was one of the technical ideas that I had that was very different from the historical experience was that the currency can be convertible instantly. This seemed kind of crazy, to people. Because after World War II it took twelve years for western European currencies to become convertible.
And that was the main idea: “Well, maybe Złoty will become convertible in ten years.”
And I said: “No, you can’t do that because how’s Poland gone trade without a convertible currency – it needs to.”
“Well, how can it be convertible?”
I always said: “It is convertible. I’ve just converted them in a taxi cab.”
Of course, at the black market rates so it’s fully convertible. The only thing that is not convertible is the official exchange rate. The official exchange rate was 1500 zlotys for the dollar and the black market was 7500.
And I’ve said: “It’s convertible at 7500 – what is your problem?”
That is good economics by the way. It’s true. It’s true. And so that was my main idea, that you can have market supply and demand, private business, basic law, right at the beginning.

My idea was never, by the way, it was never “free market”, “laissez-faire”, “neoliberalism”. It was to be like Germany, or Sweden, or Nederlands or UK I didn’t care which you choose – that’s your business. I just didn’t want you to look like the Soviet Union anymore. That was the basic idea. So I always had an expression that I wrote about and I lectured about those years that said: “Whether Poland wants to be like a free market US or a social democratic Sweden it should do the same thing at the beginning.”

That was my basic idea because Sweden also has a convertible currency, Sweden also has a supply and demand, Sweden also has a trade but it has other things too. It’s a social democracy. So I wasn’t wanting to choose one way or another I was wanting to help Poland to get the basic start. And then I felt that’s for polish people to decide – not for me, in any event. All I could do was help on the basics especially around the currency, debt, finance and so forth… By the way, we had no idea what to do with privatization. That was the most debated and hard part of the reform. Almost if you looked in our context for one moment, this is one of the very much misunderstood if in any event, so Kuron went: “Tak – rozumiem!” – for three hours.
And finally, he said: “OK, Mr. Sachs – write a plan.”
And I said: “OK”
I was with Colin. “We are gone go home and we are gone send you the plan within two weeks. I promise.”
And he said: “No! Tomorrow morning! I need a plan!” No kidding.
And I said: “Excuse me?”
And he said: “I needed it tomorrow morning.” It was midnight!
And he said: “I really need it tomorrow morning.”

And we were with Gregory Lindenberg[1] who was a wonderful friend – he was the first business manager of Gazeta Wyborcza. And he had come to introduce me to Mr. Kuroń and so we went with him – at midnight, it was 12:30 when we arrived, to open the office of Gazeta Wyborcza – it was in a kindergarten in Warsaw. And there was an IBM: first-generation IBM computer on the wooden plank across the kitchen sink of the Gazeta Wyborcza. So I sat for six hours and typed up the first plan. Of the basically these ideas. And if you are interested in it – I have a website, you can go download this plan in the original typed version of that IBM computer. It’s a little hard to read but you can actually read it. It’s quite interesting actually to read because it was written between 12:30 at night and 7:00 in the morning.[2]

Then we took it back over to Mr. Kuron's apartment – that morning. That is how I came to write this first program. And basically, basically it was right. This is what I would say. The idea that you could go to a market economy very quickly and the idea that this would be beneficial to create a basis for a new economy – was correct. Of course, this was a revolution, this was chaos, this was falling institutions, this was hyperinflation taking off, this was not a precision surgery. This was really historic, this was a revolution you had, of course, you know it. One of the most dramatic and beneficial, and bloodless, in modern history. And it worked. The end of the story from, well not the end, but the way that I watched it evolved was that this plan became the basis for discussions in the Solidarity group in parliament in July 1989 in the OKP. And I was one of the most pleasant and exciting moments in my life was the first day that prime minister Mazowiecki was in office.

[1] The first publisher of Gazeta Wyborcza - monthly budget of the publisher - about $420,000 - closing in deficit, the newspaper run by Helena Łuczywo from the former kindergarten building - source: New York Times article (16.04.1990).

[2] Scan of the original transformation plan:
http://jeffsachs.org/wp-content/uploads/2014/06/Poland-Reform-Memo-1.pdf
https://drive.google.com/file/d/1RSm3tiv_kcD9m5PSJZvBYexJaJKOs7_e/view?usp=sharing

End of part II

To be continued...

Jeffrey Sachs

Transcript from the audio recording:
Zbigniew Galar

Lecture license: Creative Commons 2.0:
Jeffrey Sachs
Transcipt license: Creative Commons 2.0:
Zbigniew Galar

Audio and PDF transcript of the recording will be available under the last part.