Shock Therapy in Poland: Perspectives of Five Years
THE TANNER LECTURES ON HUMAN VALUES
Delivered at University of Utah, April 6 and 7, 1994
The collapse of communism in Eastern Europe in 1989 and in the Soviet Union in 1991 are watershed events in world history. Naturally, the real import of these monumental events has been especially hard to judge in their immediate aftermath. Each suc- ceeding year, we gain important new perspectives on their mean- ing. This is certainly true in the economic realm, where debates about the transition from communism to market economy have been especially lively and contentious.
As the economic advisor to the Solidarity movement in Poland in 1989, I urged Poland to undertake a rapid transition to “nor- mal” capitalism, on the model of Western Europe. When the first post-Communist government in Poland came to power in August 1989, the new economic leader, Deputy Prime Minister Leszek Balcerowica, adopted a radical strategy for the rapid transforma- tion of Poland to a market economy.This strategy has subsequently won the somewhat misleading sobriquet of “shock therapy.” The strategy has been widely debated since its inception in Poland on January 1, 1990. It has been adopted, in modified form, in much of the rest of Eastern Europe and the former Soviet Union, includ- ing Russia after 1991.1 (For an earlier description of Poland’s reforms, see Sachs 1993. For a conceptual overview of “shock therapy,” see Sachs 1994c.)
With five years of experience of economic reform in Eastern Europe, the strategy can be more clearly understood and evaluated. The strategy seems to be winning the test of time. Not only have the early “shock therapy” countries — especially Poland and the Czech Republic — outperformed most of the other countries, but the idea of radical, comprehensive transformation to a market econ- omy is increasingly being adopted in countries that earlier shunned the strategy. The newly elected president of Ukraine, Leonid Kuchma, recently declared his intention to lead such a reform effort in his country.