Chapter 250 The Father of Shock Therapy
In view of the serious internal and external troubles in the country, Gorbachev had no choice but to announce the early holding of the 28th Congress of the Communist Party of the Soviet Union and the first direct election in the Soviet Union. Work is also on the agenda. Because this election allowed non-CPSU members to serve as candidates, this actually gave up the first-rank system that the Soviet Union had always insisted on. It was a crucial meeting about the future fate of the Soviet Union. Therefore, this election campaign is really eye-catching, because a series of domestic reform activities in the past few years have made the Soviet Communist Party no longer a united whole, including the conservatives represented by Ligachev and the conservatives represented by Yakovlev. The New Thinking School has many followers within the CPSU. However, with a series of effective reforms in the country by Sergey Sha, many young comrades in the party began to focus on him.
On the contrary, Seryozha was disturbed by these expectations. Seryozha himself has unspeakable difficulties, and he is not willing to advance to a higher level in his official career. What Seryozha really needed was a proxy who could be controlled. In Seryozha's view, Yeltsin, who was abandoned by both conservatives and new thinking factions, is his best candidate. Seryozha is now shouldering the important task of reforming the Soviet Union. He is well aware of the depths of the Soviet Union's economic ills, and it will not be achieved overnight if it is to be completely reversed. From the current point of view, the economic lifeline of the Soviet Union still cannot get rid of the exploitation of oil, natural gas, and mineral resources. But at present, the world economy is still in a low-level operating state. The outbreak of the information industry may be within a year or two, but the information industry does not directly help the bulk transactions of resource products. Only after the world's economy regains its vitality and consumption becomes a new driving force for economic growth, will those countries that rely on resources for a living gain economic growth along with the rise in oil prices.
At this time of day, the world is facing a lack of investment. This is especially true in Eastern Europe, countries that have just undergone social system transformation. They are shouldering a large amount of foreign debt, their own economies are sluggish, the supply of domestic goods is insufficient, and severe inflation has caused the governments and people of these countries to suffer. However, this is a rare opportunity for Seryozha, who has long been coveting industrial companies in Eastern Europe. But now, when the new governments of Eastern European countries face large fiscal deficits and foreign debts, they actually have no choice at all.
In order to let the Eastern European countries embark on the path of radical privatization that Seryozha expected. Seryozha invited one of the hottest economists from South America to conduct an academic visit to Eastern European countries to stand for the Bank of Colombia. The name of this expert is Jeffrey Sachs, and he is now employed by the Bank of Columbia as an economic consultant in Eastern Europe. The reason why Seryozha hired such a scholar is entirely because of his current famous name in the economic circle. - The father of "shock therapy".
Jeffrey Sachs' reputation in the economics circle is really in full swing, catching up with the Chicago School who successfully carried out economic reforms in Chile. Because the "shock therapy" created by Jeffrey Sachs is not an academic concept in an ivory tower, a castle in the air, this theory has just achieved great success in Bolivia, a barren country in Latin America.
Although Jeffrey Sachs was well-known in the economic circle before, he did not have the current status in the world. He was nothing more than a respected professor of economics at Harvard University.
It wasn't until 1986 that Jeffrey Sachs was hired by the President of Bolivia as an economic adviser to the Bolivian government that his shock therapy really came into play.
Bolivia is a small country in South America with almost no industry. The economy is mainly based on agriculture. It is called agriculture. In fact, the most profitable agricultural economy is to provide coca, the raw material for drug production to Escobar's drug cartel. It was such a poor American country that fell into serious economic difficulties in the mid-1980s due to a series of investment and decision-making mistakes. In 1984, Bolivia's foreign debt was 5 billion US dollars, and the interest payable that year was 1 billion US dollars, which already exceeded Bolivia's total export income at that time. By 1985, the Bolivian government's fiscal deficit had reached 4,869 trillion pesos, which was equivalent to one-third of Bolivia's GDP that year. At that time, Bolivia's inflation rate had reached 24,000%. The economy has completely collapsed.
As the saying goes, heavy codes are used in troubled times, and strong medicines are prescribed for serious illnesses. Faced with this dire economic environment, Jeffrey Sachs' radical shock therapy naturally came in handy. Leaving aside those esoteric economic principles, Jeffrey Sachs' economic reform is nothing more than three secrets, namely, reducing all government expenditures, deregulating price controls, and thorough privatization. When these measures were implemented, they immediately had an immediate effect in Bolivia.
In the first week of the implementation of shock therapy in Bolivia, under the multiple combination of the government's large-scale cancellation of price subsidies and expenditure cuts, as well as crazy tax increases. Inflation in Bolivia is finally under control. The money supply in the entire market is not increasing because the government has canceled investment. Coupled with the almost crazy tax increase policy, more and more money has returned to the government. The money in the market has decreased, so prices are no longer skyrocketing.
After controlling inflation, Jeffrey Sachs immediately began to implement the second reform step, which is to deregulate the price control, let the price and the currency start to be freely linked, and at the same time start a large-scale privatization activity . If only the price control is relaxed, the price will naturally rise according to the money supply in the market at that time. However, the move of privatization has put prices on a downward path. Because of privatization. State-owned assets began to circulate in the market like commodities. For example, factories controlled by the government were not originally sold in the market. But when thorough privatization began, factories were put on the market like commodities. All of a sudden, there are more commodities on the market, and the prices will naturally start to fall.
This set of measures by Jeffrey Sachs has achieved great success in Bolivia, and the situation of Bolivia at that time was exactly the same as that of Eastern European countries now. assets. This made Jeffrey Sachs full of confidence in applying his shock therapy in Eastern Europe.
So under the arrangement of Columbia Bank, Jeffrey Sachs started his trip to Eastern Europe. Seryozha was well aware of Jeffrey Sachs' theories, and he was happy that Jeffrey Sachs became an economic advisor and reform pusher for the governments of Eastern European countries, because whether it was deflation, marketization of prices, or thorough private ownership This transformation was what Serezha had been looking forward to for a long time. Seryozha was convinced that the Gorky Consortium would benefit most if Eastern European countries followed Jeffrey Sachs' shock therapy reforms ()