the terrible events of September 11th
showed how a whole world might be driven
deeper into recession Argentina's
economic meltdown has raised new fears
about the perils of the interconnected
global economy can't get away from the
fact that globalization makes a senator
pendant so it's not an option to shed it
so is it going to be on balance positive
or negative this is the story of how the
new global economy was born
for much of the 20th century people
blamed free-market capitalist for the
ills of inflation recession depression
and mass unemployment so governments
everywhere sought to curb market forces
and rein in their economies the first to
change direction were Ronald Reagan in
America and Margaret Thatcher in Britain
in the 1980s markets were deregulated
state-owned industries were privatized
it was the start of a world revolution
part of what's happened is a capitalist
revolution at the end of the 20th
century the market economy the
capitalist system became the only model
for the vast majority of the world
the world changed its mind in the Soviet
Union and it's satellites
in the emerging markets of Asia and in
the state dominated economies of Latin
American governments everywhere moved
away from state control and towards free
markets this free market revolution has
really led to the new global economy it
excites some and terrifies others that
revolution of course wrench tonight on
commanding heights the agony of reform
[Music]
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[Music]
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[Music]
much of the world once modeled itself on
the Soviet Union
here Lenin's revolution industrialised a
backward country within a single
generation
the Soviet system ruthless and
centrally-planned gave birth to vast
industrial complexes like norisse
[Music]
no rules symbolized every stage of
Soviet economic history from the
original prison camp and the beginnings
of Soviet industrialization
right up to the collapse of the economy
in the 1990s
[Music]
so much of its history have been tied up
with the fact that it was a prison camp
even in the early 1950s a hundred
thousand political prisoners were
working in its mines and factories
millions wrote the slow train to the
prison camps
bezel ero Mashburn's crime against the
state was to check out the wrong book
from the Public Library
berries they sent me to nourish after
the trial the trial lasted about 10
minutes my wife and I said our goodbyes
[Music]
the prisoners slave labor became a
crucial component of the Soviet economy
[Music]
no Adachi when they took us to work
they'd say attention you enemies of the
people a step to the left or to the
right and we will shoot you without
warning a chill went up my spine
and I thought you are the enemies of the
people who suddenly we were
[Music]
the Soviet system of central planning
meant that the Kremlin controlled every
aspect of the country the aim was to
make the Soviet Union strong and
self-sufficient
[Music]
the Soviet Union became an industrial
giant a military superpower and a threat
to the West Russia looked at very
formidable the essence of Soviet power
was its ballistic missiles they could
wipe out any country in the world in a
30-minute time so that's a lot of power
the world over gaining by its main
methods military threat for military
might we all fought this opportunity was
still a vast powerful economy huge
military power a threat to world peace
determined to extend its influence
around the world
[Music]
Soviet influence was everywhere in
Eastern Europe in Africa
[Music]
and Latin America socialism planning
state control government ownership these
became the gospel
in Asia the apparent success of
communist China seemed to show the way
[Music]
but the truth about the Soviet economy
lay concealed behind the iron curtain
[Music]
minefields barbed wire searchlights and
lookout towers sealed the Soviet block
off from the outside world in the 1980s
British intelligence recruited a Russian
double agent to penetrate this wall of
secrecy
of Soviet intelligence the KGB became
suspicious and put him under house
arrest
[Music]
news reached London that it stopped spy
was in mortal danger
Charles pol was foreign policy advisor
to Prime Minister Margaret Thatcher the
news of the attention to spring him came
to me in Downing Street I couldn't tell
anyone else because no one else knew
about it it was so sensitive that pole
needed the Prime Minister's personal
approval to activate an escape plan only
Gordievsky was perhaps the most valuable
agent because he understood the Soviet
system from inside in Moscow the net was
closing in on Oleg Gordievsky at at that
time I decided to use my secret
long-standing plan of escape as sent a
signal to the British intelligence
Gordievsky evaded his KGB Watchers and
made his way to a forest near the
Finnish border
in the morning I started to move to the
site in the woods
[Music]
and there are I waited
[Applause]
[Music]
I waited arrival of cars driven by two
British people
[Music]
the breeders pick me up put me in the
boot and drop to the border it's most
very small current very small
[Music]
on the border is that it to stop one
stop second stop stop they were
approaching the moment of maximum danger
[Music]
the KGB and Soviet custom checks of the
cars I heard the voices and I heard even
the the KGB dogs barking I'm going to
migrate luck it went without any
accidents
one of the British agents a woman
through the guard dogs off the scent
by feeding them potato chips
[Music]
three days later Gordievsky was in
London and the debriefings began when I
was a British agents inside the KGB the
British intelligence service didn't have
time to ask me about economy because
they were interested about strategic
problems in arms control questions were
so overwhelming the West neglected the
important foundation of the armaments
the economy Gordievsky told his British
spy masters that the Soviet Union was
under great pressure devoting more than
a third of its entire economy to
military spending and the analyst is
that new account put such a huge leader
because know nobody would then believe
it later economists realized that the
Soviet Union had been spending at least
50% of the military
gordievsky's information was shared with
President Reagan and the Americans and
he was able to play behind the scenes a
road of extraordinary influence
[Music]
thanks to gordievsky's intelligence
Western leaders realized that Soviet
military might rested on a crumbling
economy the colonist administration
reported that the economy was growing it
was not the case the economy started to
go down all the time and the deficit was
covered only with the help of the oil
prices and the extra money made it
possible to claim the labor successful
as they ready seen in the world
Soviet satellites circled the world and
nuclear submarines prowled the oceans
[Music]
but after seven decades of communism the
real story of the Soviet economy was one
of empty shelves and a standard of
living that was a fraction of Western
yours
[Music]
so with economy doors neither nor it was
nor the Stalinist economy anymore
but it was not a market economy
so it was no water no fire it was a mess
an independent minded young economist
grigory yavlinsky wrote a report on why
workers in state mines were so
unproductive the people don't want to
work the people have no incentives the
economy inside which the people have no
incentives have no future
[Music]
so you can do two things
take it and gone and put this gun to his
head like it was a distance time or you
have to give him incentives because he
wants to improve the life of his family
and he can't
factory managers at Norilsk could see
the economy was not working because the
workers were not working
please that cell is Makara sure about
that anybody you can't work properly
under socialism but a monster well sure
there is no incentive and sadly that's
the only thing that gets us going yes
the snow nor studies earn money
people come to work and just go through
the motions they dissolve rich papers to
the crosswords the state goes on paying
then the state gets poorer the people
that corrupt it then bankruptcy and
that's what happened the collapse of a
great Empire like the Soviet Union India
had used central planning to
industrialize its peasant economy and
conquer poverty now India like
government dominated economies all over
the world was running into difficulty
the Government of India eventing to
business in a big way and they decided
to control whatever was there in the
private sector also as firmly and
fiercely as the quote the British Raj
was gone now people were subjected to
the permit Raj because everything needed
a government permit
India became a byword for red tape and
bureaucracy businessmen found it almost
impossible to get things done it used to
take us about 12 to 24 months and about
50 visits to Delhi to get a license to
import ik buta worth $1,500 since it was
impossible to work with the system
people learned to work around it every
license every permit was procured by a
corrupt means a bribe well bribe is the
simplified I suppose self-sufficiency
was India's idea to protect its own
manufacturing industry India shut out
foreign employees and because of this
protected market the Indian people were
being given shoddy goods and services at
very high prices enterprise was stifled
and growth was crippled
the economic environment was simply not
conducive to efficiency or profitability
we were in a shortage economy my father
waited 15 years to buy a car
[Music]
take India's beloved ambassador car it
is made by Hindustan Motors which
started manufacturing in the same year
as Japan's Toyota 50 years later Toyota
makes 5 million cars a year the
understand sells 18000 ambassadors and
still to the same design if you have a
controlled economy cut off from the rest
of the world by infinite protection
nobody has any incentive to innovate
nobody has any incentive to increase
productivity to bring new ideas
overprotected / administered / planned
the permit Raj was quite literally a
break on the Indian account
in Latin America radically different
leaders shared India's suspicions of the
world economy in the 1940s and 50s it
was Argentina's Juan Peron and his wife
Evita
[Applause]
in the 1960s it was communist Cuba's
charismatic Fidel Castro and in the
1970s it was Chile's Marxist President
Salvador Allende
though rich in raw materials Latin
America seemed doomed to perpetual
poverty the dependency theory of
economic development seemed to offer a
way out
the dependency theory said that if you
want to get high economic growth in the
country what you need to do is put up
barriers tariffs that restrict the flow
of imports into the country develop and
build your own domestic industries and
that if you don't do that you're going
to be victimized by world trade the
theory was very attractive it said you
would develop on your own and you would
be more self-sufficient
the reality is that you cut yourself off
from clothes of Technology clothes of
investment from clothes of know-how and
instead of getting ahead you were
falling back because they are not
threatened by competition you create
very lazy non competitive companies that
produce not very good goods at a higher
prices it may create jobs here and there
but in the long term it may create even
more poverty
by the early 1970s Latin American
economies were in trouble
Chile elected the Marxist president
Salvadorian I end his solution was not
less government intervention but more
businesses were nationalized or
expropriated price controls were imposed
civil unrest grew as the economy spun
out of control have a tremendous
inflation Chilean society became
extremely polarized it's true
it was polarized before the end but
during agendas period the society was
extremely polarized
[Music]
it all ended in the military coup as Air
Force jets strafe the presidential
palace agenda was trapped inside this
was the last picture taken of him alive
[Music]
a yen day supporters union leaders and
left-wing students were rounded up in
the national football stadium hundreds
were never seen again
[Music]
[Applause]
Chili's military hunter was led by
General Augusto Pinochet many
middle-class Chileans saw him as a safe
[Applause]
I think that Pinot Chiefs plan was
basically we planned to manage an army
he didn't have an economic policy to
manage the country after a year year and
a half of military government
you still had 20% per month
built-in inflation that wouldn't go away
until something structurally changed
one of those who plotted the coup went
to top to finish a face-to-face birthday
I told him you've been called chili
Savior but you will go down in history
as the man that buried chili inter-cell
Tamala is a surname element he was very
shocked by this recent era interlock or
entire chiller and he said okay you've
got 48 hours to come up with the
national plan to fix the economy petrol
injection CMR plan the reverberation
economic the only people who had a
serious blueprint of how to get out of
this were this group known as the
Chicago boys the Chicago boys were a
group of economists at Chile's Catholic
University who had been sent to the
University of Chicago as exchange
students there they absorbed the ideas
of the Chicago School of Economics with
its almost revolutionary belief in free
markets when characterized Chicago
School was a strong belief in minimal
government and an emphasis on free
market as a way to control the economy
professors like arnold harberger and
milton friedman taught their students to
mistrust state planning and government
control when the Chicago boys returned
to Chile they brought with them ideas
that were a direct challenge to the
dependency theory this small group
stayed together through the I end eight
years and they used to meet I think
every Tuesday for lunch and they would
keep kind of a running document which
said how they would reform this economy
how this economy has to be reformed what
is to be done to get out of the swamp
that they were putting themselves in
in Roma Peleus unfortunately due to the
idiosyncrasies of the military mind
the generals prefer the control economy
said that is an economy that would obey
orders for my my officiant epithelia
[Applause]
xavier vo an influential businessman
sympathetic to the hunter was trying to
push the military in the direction of
the free market so I call them econ
Friedman and invite him to come to Chile
so Milton Friedman the most famous
free-market economists in the world came
to lecture in Chile I went down to Chile
and spent five days giving a series of
lectures on Chilean problem particularly
the problem of inflation and how they
should proceed to do something about
Friedman's first talk was at the
Catholic University his theme the
inescapable link between free markets
and freedom the emphasis of that talk
was that free markets would undermine
political centralization and political
control he said that you cannot have a
repressive government for long within a
genuinely free economic system
[Music]
but Friedman was also persuaded to visit
the grim conference centre from which
Pinochet ruled Chile
Friedman told Pinochet that he needed to
take decisive and immediate action to
defeat inflation Friedman said well I'm
going to give you an example if you cut
the tail to a dog in pieces step by step
you will kill the dog this is the same
as inflation you have to cut it at once
and then the country will start moving
Milton's presence probably helped to
stiffen the spine of people who were
trying to insist on better economic
policies that's a period when the
takeoff of the Chilean economy really
began the major reforms were made
the hunter called on the Chicago boys to
rescue the economy
500 state-owned businesses were
privatized government budgets were cut
import tariffs were swept away the
markets were given free rein
[Music]
and better-suited weedless in their
basic thrust was to increase exports and
abolish artificial price controls a TVC
LS here was the first case in which you
had a movement toward communism which
was replaced by a movement toward free
markets there was much pain for the
poorest the cost of living went through
the roof the gap between rich and poor
got wider and stayed that way they were
starting a very deep process of
transformation of the economy without
any regard of what happened to people
and we ended up at one point in time
with seven thirty percent unemployment
rate
according to the Chicago boys the gain
was worth the pain
Chile became the fastest growing economy
in Latin America they were able to start
the process of deregulating the markets
opening up the economy so that's the
contribution they were able to
anticipate a global trend and Chile has
benefited from that at a very high price
not a very very believe me at a very
high human price the Chilean economy did
very well but more important in the end
the Chilean military hunter was replaced
by a democratic society free market did
work their way in bringing about a free
society
[Music]
this is the monument to the 2400 people
who died or disappeared during the
dictatorship
the brutality of Pinochet's regime left
little enthusiasm for economic change in
the rest of Latin America
the fact that the Pinochet regime was
politically unsavory allowed the left to
make an association between market
reforms on the one hand and repressive
authoritarian governments on the other
and that was a terribly damaging
connection the intellectually leaders
were on the side of IND not on the side
of Pinochet they regarded me as a
traitor for having been willing to talk
in Chile Friedman then became a figure
of hate and they organized
demonstrations against him wherever he
went and this went on for a period of
years the protests reached their climax
when Friedman was awarded the Nobel
Prize in 1976
the Nobel ceremonies in Stockholm
I was subject to abuse in the sense that
there were large demonstrations against
me there was a concerted effort to tar
and feather me in the minds of many
people the reforms in Chile were tainted
by the political cast of the regime that
did set back the cause of liberal
economics it made other countries more
resistant to the idea of market reforms
and they otherwise would have been
[Music]
the economic reforms in Chile may have
had little immediate impact on the world
but the ideas behind them were gaining
momentum in the Soviet Union where the
Aged leadership was dying off and the
economy was moribund people were
starting to question the system by the
1980s it was becoming clear to the
better and form that the Soviet system
really wasn't working but they couldn't
really talk about it publicly they
talked about it in their kitchens they
talked about it in small groups but it
was not something that could be talked
about in the public in Leningrad the
cradle of Lenin's revolution an economic
student was asking if the solution lay
not in Marxism but in markets I'm
interesting in what is happen in the
economy I start to feel that there's
something wrong there is some illness in
the economy but I try to discuss it with
my professors I get no feedback you feel
that either the world around you crazy
or you yourself crazy
Tobias helped to organize seminars far
from the prying eyes of the secret
police
[Music]
one of his co-conspirators was a young
economist from Moscow earlier we were
all in our 30s researchers or teachers
who specialized in the Soviet economy
dreaming significant we could see how it
worked and were well aware of its weak
points abolished you have century
associative I read books by Friedman and
Hayek with great interest
they were our inspiration with Anastasia
on that stage definitely we do
understand that this thing's quite quite
risky yet the some of our sessions took
place behind closed doors we didn't
trust everyone at the seminar so we kept
some people out our union with our
discussions were not revolutionary but
they were far beyond the limit of what
was politically permissible with us were
[Music]
after a day arguing the pros and cons of
a market economy they would sit around
the campfire and tell jokes
there was the idea that Gator will
become prime minister maybe which sounds
at the time absolutely crazy and
everybody laughing and another guy said
that yeah he will be Prime Minister or
he will be prisoner
[Music]
but by 1985 it was not just economic
students who were asking what was wrong
when Mikhail Gorbachev became leader of
the Soviet Union he was appalled by the
economic decay does nobody says that
Kamisha there was a government
Commission to examine the problem of
women's pantyhose imagine a country that
flies into space launches sputnik's
creates such a defense system and it
cancels the problem of women's pantyhose
there is no toothpaste no soap powder
not the basic necessities of life which
was preposterous and embarrassing to
work in such a government order the
completest
Mikhail Gorbachev was what the Soviet
Union had been waiting for a new young
dynamic leader who was going to reform
the system but that system had been
propped up for a decade and a half by
high oil prices and just after he came
in the price of oil collapsed which
meant that the economic problems facing
the Soviet Union were even more enormous
Gorbachev's attempt to restructure the
economy was called perestroika
perestroika perestroika was a reform
that aimed at gradual political change
to create an infrastructure for market
economics we had several generations
with no experience of market you can't
just announce the markets and see them
appear overnight I was actually saying
it will take a generation for it to
start working he started to allow a
certain amount of private enterprise but
it was really a very uneven process he
ended up removing many the tools of
control of central planning but didn't
really replace them with anything else
Gorbachov faced mounting pressure from
the West
the US president believed in the
economic philosophy of Milton Friedman
and Chicago
Ronald Reagan was not alone he had a
political soulmate in Margaret Thatcher
Britain's Prime Minister had already
embarked on a radical free-market
economic revolution at home Thatcher and
Reagan were determined to go on the
ideological offensive their political
rhetoric began to heat up
what I'm describing now is a plan and a
hope for the long-term the march of
freedom and democracy which will leave
Marxism Leninism on the ash heap of
history as it has left other tyrannies
which stifle the freedom and muzzle the
self-expression of the people up to that
time you heard doctor he'd be one of
contained population that wasn't enough
for agrarian and we thought we should
make it quite clear to communism that it
could and would never win and that we
would go and fight the battle of ideas
between what the free world had to offer
compared with the dictatorship and
tyranny and cruelty of communism
ever since Gorbachev's first visit to
Britain Margaret Thatcher never missed
the opportunity to debate him on the
evils and inefficiencies of communism
and its system of central planning
speaking to Gorbachev she said because
you see how your economies organized
centralized entirely led by the Kremlin
look at me at Britain and the West we
have market economy and it is running
itself I don't have to tell different
indices what to do I don't do it with it
at all my job compares with your job is
much easier and you would be able to
enjoy your job as head of the Soviet
Union much more if you had a market
economy
[Applause]
in 1987 President Reagan carried this
war of words to the most symbolic
stretch of the Iron Curtain the Berlin
Wall
general secretary Gorbachev if you seek
peace if you seek prosperity for the
Soviet Union and Eastern Europe if you
seek liberalization come here to this
gate mr. Gorbachev open this gate
mr. Gorbachev tear down this wall
[Applause]
Tomoki well passionately doesn't assume
that means an elder Margaret Thatcher
carried the free-market message to poll
from 1988
mrs. Thatcher had agreed to meet the
Communist leadership provided she could
also visit the port of Gdansk
almost a decade earlier in 1980 shipyard
workers here in Gdansk had taken a stand
against communist rule they had struck
against the price rises and food
shortages caused by a crumbling economy
their leader was an electrician named
luck valensa
I used a loser loser loser the country
was so much in debt with the West
refusing to lend us anymore that the
whole system was failing our sorrows
Balaji it was more and more inefficient
and everybody even the Communists knew
it lack Valenza climbed the shipyard
gate to announce a momentous victory the
workers had forced the government to
recognize solidarity the free labor
union
[Music]
[Applause]
I thought they didn't know what they
were fighting for I thought they were
just fighting for a pay-rise only then
did I learn it was all about freedom
ten million poles joined solidarity
under valances leadership solidarity
became the main opposition to communism
but in 1981 after a year-and-a-half of
strikes and unrest the government
declared martial law valensa was placed
under house arrest
when Thatcher visited Poland in 1988 she
demanded that the communist government
allow her to meet lek Valen see Natasha
you didn't say no to mrs. Thatcher
no-one refused her so her noticing us
and demanding a meeting with me and the
others that was a crucial event
[Music]
she came into the city of Gdansk on
board a small ship and as it went past
the shipyards all the cranes and the
dockside was lined with shipyard workers
all cheering and waving and one began to
sense here was an extraordinary
experience in the making
[Music]
lofts in yet the shipyard workers were
not only sitting on the gate but they
were also on the rules surrounding the
shipyard
she's a tough lady she conquered the
hearts of the people of dense
solidarity workers escorted mrs.
Thatcher to a church
[Music]
great crowds sang the solidarity anthem
a haunting anthem rechargeable burrows
oh I could see she was very emotional
about this visit her eyes registered
everything that went on around her it's
one of the very few times that I saw
tears of it as much as ours
as she was so moved by this expression
longing for Liberty
[Music]
at the house of the lenses priest
Margaret Thatcher met with the leaders
of solidarity a solidarity cameraman
recorded this historic meeting and mrs.
Thatcher arguing that economic freedom
and personal freedom go hand in hand
sounds really bossy and interfering I
think they were genuinely grateful you
solidarity she said you must have your
own ideas of plans worked out
there's no good just being popular one
point she said to answer but how do you
get your thinking over to the Polish
government and he laughed and pointed to
the ceiling said there's no trouble
we've got this meeting bugged
[Music]
this meeting with mrs. Thatcher made
these future politicians recognize the
opportunities within their grasp new
bagosa features without this meeting
there would have been no victory that's
for sure
the wood has been delay greater
difficulties or even our destruction
strenuous Thatcher's free market message
seem to offer an escape from a Polish
economy that was debt ridden and riddled
with shortages as the communist
economies got into deeper and deeper
trouble reformers and economists within
the Soviet world began to look outside
for solutions and for alternative paths
they looked at the miracle economies of
Asia they looked at what was happening
in the United States and in Western
Europe and they looked even as far as
Latin America
[Music]
one of the poorest countries in Latin
America and with a history of 189
military coos Bolivia was also one of
the most unstable
[Music]
and I was going to college in Texas
first question you'd be asked us who's
the president of Bolivia this week
second question down the road was here
from Bolivia ah Bolivia
what's inflation rate in Bolivia this
week because we had gallop and
hyperinflation that destroyed our
economic base
we found the Bolivia was the seventh
highest inflation in the history of man
twenty-three thousand five hundred
percent prices increased by the hour
the cost of food and clothes kept
increasing before it was all over the
total inflation averaged one percent
every 10 minutes
7 out of sembilan incitive in poverty
the poor people get hurt even more let's
see their pockets be eaten away by
inflation that is galloping around it's
like a tiger the hyperinflation if you
kill it when one bullet leech the root
of the problem was government finances
the government was spending 30 times
more than it received in taxes across
the continent Latin America's
uncompetitive economies had been piling
up debt
in the 1970s a massive hike in world oil
prices left foreign banks awash with
petrol dollars so here were the
international banks with billions of
dollars and nowhere to earn interest on
they discovered Latin America we were
offered unreasonable amounts of money
these banks who are very unwise in the
cleansing policy came to the happy
conclusion the countries don't go broke
it's true but sometimes they don't pay
guess what one day these countries could
no longer afford to repay their debts in
1982 a financial crisis in Mexico
triggered a chain reaction that caused
the 1980s to be known as Latin America's
Lost Decade Bolivia was probably the
most severe case of how things had gone
wrong in Latin America for decades they
just printed money they collected no
taxes you can't collect taxes have to
make money up somehow just printed it
Alou who was a basket case we've
considered hopeless we had help from
nobody we were totally alone the World
Bank had closed his office
the IMF had pulled out its
representative and the American
government and other friendly nations
wouldn't answer the telephone at 29
economist Jeff Sachs had just become one
of Harvard's youngest full professors
ever in 1985 some former students sent
me a note asking whether I would be
ready to come to a meeting with a group
of visiting Oblivion's
the Bolivians had come to Harvard to
take part in the seminar on the
hyperinflation that was ravaging their
country I was absolutely fascinated made
a few observations somebody in the back
of the room hyped up and said well if
you think you know what to do you come
to La Paz
[Music]
when I got to pass in July 1985 the
inflation rate was about sixty thousand
percent
[Music]
was an extraordinary and terrifying
thing to see actually
[Music]
it was a society at the edge of the
precipice
[Music]
Bolivia's politicians were paralyzed
only one man seemed to know what to do
I met a man at a cocktail party one of
the evenings at work didn't know him at
all I introduced myself
[Music]
he said what are you doing I said I'm
writing an economic plan for the next
government and I said I'm very very
pleased that you're studying this
because we're gonna beat these guys and
you can come to work for us so they all
left said oh that's very interesting
what do you have in mind and I described
a few elements basically how to stop a
hyperinflation
[Music]
you have to go much beyond that you
don't understand we need so much more
you're just going on the surface this
country needs a complete overhaul we've
got to get out of the mess that word I
wasn't sure whether it was provoking me
whether it was kidding
whether it was sober whether he knew
what he was doing it turned out that
this was gone II Gonzalo Sanchez Losada
a genius
Gummy's party did win the election and
he became Minister of Planning he told
the president that Bolivia was running
out of time
we told him you have 90 days before
Bolivia's hyperinflation becomes the
highest inflation in world history so he
told us okay you have 20 days you have
to start working now there was a big
discussion whether you could stop a
hyperinflation or inflation period by
taking gradual steps in this Jeff Sachs
was influential you said all this
gradualist stuff just doesn't work when
it really gets out of control you got to
stop it like in medicine you got to take
some radical steps otherwise your
patient is going to die to avoid leaks
they worked at home
every few days Dhoni reported to the
president
we said look boys you got one chance and
remember as Machiavelli says all the bad
news at once the good news little by
little so he said get it all done
[Music]
charity is get it over get it done
stop hyperinflation and then style start
rebuilding your economy so you achieve
girlf
in August 1985 Dhoni went public with a
program called shock therapy it caught
everybody by surprise it had great
credibility it was a shock shock therapy
spelled the death of dependency theory
government spending was slashed price
controls were scrapped import tariffs
were cut government budgets were
balanced we didn't use highly
sophisticated economic theory to deal
with hyperinflation we just use very
simple things such as from now on the
government will only spend what it gets
you get one peso spend one peso you get
two pesos spend two pesos if we don't
have it we don't spend it no borrowing
from the central bank and therefore the
central bank did not have to print money
shock therapy
meant that the price of essentials
transport food fuel all shut up
until then people had fought that only a
military dictatorship like Chile's could
impose such tough measures without
tearing society apart
Bolivia may be a small country but it
had a very big impact in terms of
kick-starting reform throughout Latin
America
in Brazil a former professor who
actually used to teach the dependency
theory launched a program of economic
reform that looked a lot like shock
therapy Argentina was suffering from
20,000 percent inflation and the new
president of that country said you know
we've seen this movie before pro-market
reforms could be implemented and they're
a democracy and we demonstrated that it
was possible here in Argentina
[Music]
all across Latin America governments
began to sit up and take notice
I think the Bolivian experience did have
influence the fact that we did it in
democracy we did it without great social
violence had impact on economic thinkers
and on politicians in late 1985 and as
we were struggling late into the night
with the problem he said you know that
this is extraordinarily hard but what's
happening here
this is going to have to happen all
through Latin America
I watched it unfold one country after
another
it is a curious fact of history that
what happened in Bolivia was to have a
direct impact on the frozen economies of
Eastern Europe
I was approached by a Polish government
official who had watched the Bolivian
reforms and then had seen the work that
I had done in Argentina and Brazil he
finally asked me well would I go to
Poland and help
[Music]
the poles themselves feared that they
were descending into starvation the
shops were utterly empty for miles I
would see a woman just standing on the
street sobbing there's no milk in this
city I can't find any milk for my child
what am I going to do it was terrifying
[Music]
Saxe arrived on the very day that
roundtable talks agreed there should be
free elections in Poland the situation
was more than dramatic one can change a
political system overnight but an
economic system needs year's system
economies need Shabalala whenever Soviet
power was challenged in Eastern Europe
the response was very clear it was tanks
it was a Red Army that was a case in
Berlin in 1953 Budapest in 1956 Prague
1968 but the answer was different in
Warsaw in 1989 solidarity one
ninety-nine out of a hundred seats the
head of the Polish communist party
called Moscow for directions Mikhail
Gorbachev's answer was stunning
do nothing accept the outcome of a free
election and that was really the phone
call that ended the Cold War
and of course the great symbol of the
end of the Soviet empire was a fall of
the Berlin Wall
one country after another broke free of
communism Poland Hungary Czechoslovakia
Romania
1989 I was truly a miracle year
[Music]
Poland was free now solidarity had to
liberate the Polish economy
late one night Saks met the Solidarity
economists yacht's Agora in a Warsaw
apartment I was trying to explain how
you get out of this mess that the
communist system had left behind every
couple of minutes pound on the table
back back yes yes yes doesn't mean I
understand and we go on and it was very
rough you know it was really exciting we
went out for a few hours like this I was
exhausted the roof was filled with smoke
he said okay clear right up the plan
we got up I said well this will be a
great honor we'll send you something
just as soon as we can
[Music]
no tomorrow morning I need the plan
I laughed and he said I'm absolutely
serious I need this written down now
[Music]
we wrote up a plan that night and
delivered it the next morning they
distributed it to the solidarity members
of the Parliament like Sachs
solidarities new finance minister
Leszek Balcerowicz believed transition
had to be rapid and massive just after
breakthrough there's a short period the
period of extraordinary politics by
definition people are ready to accept
more radical solutions because the
absolutely phoric of freshly Brigade
freedom one could use it only in one way
by moving forward very very quickly
Poland societies do with Libya did to
introduce a shark therapy cut back on
them expenditure and trying to reduce a
market system and see if it could work
prices almost doubled and shortages
didn't
[Music]
all bolts of rubbish could do was chew
his nails and wait for the law of supply
and demand to kick in but then after a
few days farmers began to bring their
produce to market
that was going on for a walk and they
are looking at the prices in the shops
the prices of eggs
[Music]
his aides told him to concentrate on the
price of the pavements
if eggs appeared if eggs got cheaper the
market would you work out
[Music]
eggs did appear
and then the price of eggs began to fall
[Music]
and I remember that very important day
when the crisis of X Foley
this was one of the signals that the
program stabilization program is working
but reforming state-owned Heavy
Industries would prove a much bigger
challenge most plant became free one of
the problems I have to face was a fight
about privatization the big problem was
the old industries inherited from the
Communist past and there there were
wrenching problems of unemployment of
making them efficient keeping them
running and that's where you saw a lot
of the a lot of the pain
making overmanned state-owned industries
efficient or profitable meant wide-scale
layoffs for Poland's blue-collar workers
when I became the Prime Minister the
euphoria of transition was almost over
we had 20,000 strikes sometimes
organized by my former colleagues from
solidarity movement solidarity began to
lose support as workers felt the pain of
reform I was asked to go to some
factories to meet with workers to try to
explain what my vision of this might be
when scientists in the beginning we were
made to believe that it wouldn't take
long for things to get better
Sachs gave us a rosy vision for the
future of our economy the intercourse
wishes Kristen found out that the
program imposed on us from the outside
most harmed precisely those poles who
had contributed so much to political
freedom issues of ownership politically
but elsewhere the market was flourishing
tens of thousands of small businesses
sprang up and the Polish economy began
to move you suddenly had thousands of
people trading the same products in
front of the state-owned shop but at a
much lower price this is phenomenal
because it shows enormous ly
entrepreneurial Drive of the Polish
people
when you have your five minutes take
when the Polish people finally got that
opportunity they took the chance they
used the chance at the Soviet embassy in
Warsaw a special observer from Moscow
had been monitoring the economic reform
Soviet embassy also had a feeling that
this is a disaster for them they didn't
want to send my telegrams to Moscow I
was describing what's going on there and
they will completely disagree I was very
supportive
and they were very negative I was
sending in the analysis to Gorbachev
voltage is doing in the right thing for
Paul that's what I'll say
gorbachev asked give Alinsky to write up
a plan for radical economic change i
hope to do in year and a half as much as
possible to make a transition from the
soviet economy to the market economy I
understood that we should move as
quickly as possible the u.s. through its
moral support behind the free market
reforms we want to learn a little bit
more about mr. yavlinsky
efforts a country is trying to change 70
years of political and economic
philosophy and change it in a way that
moves it in exactly the opposite
direction
but Gorbachov shrink from shock therapy
the of Lenski plan languished on his
desk
but yet the ceresco so usable coolant
was definitely a pilot project and the
fact that reforms started there was very
important but please understand no
country can repeat the reforms of
another country knew more about that
issue uniform Gorbachev was looking at
Poland he's looking at he's looking
around the world trying to find some
formulas that would help the Soviet
Union make the transition and what more
logical place to look than in communist
China which is marching towards the
market
[Music]
in 1989 the year the Berlin Wall fell
Gorbachev visited Beijing as he arrived
protestors were gathering in Tiananmen
Square in China too the Communists hold
on power looked unsure but Gorbachev
found the Chinese economy was being
transformed under its leader dung
chopping dong-chil ping was an old-style
communist he'd been very close to Mao
Zedong but he had fallen from power and
had spent time when he was under house
arrest pacing around in the courtyard
thinking through what had gone wrong why
was this communist dream
turning into such an economic nightmare
and when he came back to power he said I
have two choices I can distribute
poverty or I can distribute wealth dung
had been impressed by the success of the
Southeast Asian economies in which
overseas Chinese were so prominent they
were lucky that after Mao died then
shouting open up China he had to fight
his own conservatives the Orthodox
communists who were terrified that this
meant dismantling the socialist tea that
they were building done shopping said
don't worry were not pursuing capitalism
were pursuing socialism with Chinese
characteristics
the Chinese decided to keep the
political system of communism but to get
rid of the economic system called
communism and go towards market
socialism with that they could keep
their political control but also have
the benefits in the marketplace
by the mid-1980s China embarked on its
era of very high economic growth rates
moving towards a market system moving
towards engaging with the world economy
under Gorbachev there had been intense
argument whether China's route to the
market was right for Russia
the KGB said well why don't we do what
China's doing keep political control but
open up on the margin and we'll maintain
our political power we'll maintain the
state enterprises but we'll grow
that's what China did Tiananmen Square
showed how far the Communist Party was
willing to go to hold on to power them
selling believed in restructuring before
opening up grass knots and freedom and
transparency and so on that had to wait
first restructure and restructure under
the old system by director so that
nobody can say no tongue understood that
if you release these forces unless if
you do it in a controlled way the system
will collapse
he saved the country from an implosion
like the Soviet Union many people say
why didn't Gorbachev do the child
approach without understanding that that
of course is what Gorbachev tried to do
for four years they just don't get it
they don't understand that Russia was an
80% urbanized heavy industrialized
economy whereas China was a peasant
economy with 80 percent of the
population in rural areas in Russia the
non-state sector was 1% it was nothing
so yes you could get a few restaurants
going but you couldn't get to the core
of the problem without addressing the
industrial core of the system so they
had no easy way out
they had no gradual track like China
garbage job got stuck was economic
reform he began to late and his reforms
were too cautious he never touched the
foundation of the planned economy
this was a society while on the surface
it looks stable was more like one of
those cartoon characters that's run off
the cliff is stationary for the moment
doesn't realize it's about to reach a
freefall and it did go into that
freefall
[Music]
in August 1991 diehard communists staged
a coup
Morris Yeltsin became the voice of
democratic resistance the coup collapsed
Gorbachev survived the plot but his
prestige was destroyed and the Soviet
Union's days were numbered the end of
December of 1991 Mikhail Gorbachev went
on Soviet television big machine he told
his viewers that the Soviet Union would
within a few days ceased to exist
legally after seven decades the Soviet
Union was over it was finished fade to
black
[Music]
the President of Russia was Boris
Yeltsin unlike Gorbachev Yeltsin wanted
to move fast
he chose the young reformer yog or
Gaddar as the man to turn Russia into a
market economy for guide or it was a
shock there was no money in the Treasury
there was no gold there was not even
enough grain to get through the winter
it was unclear who was even in charge of
the nuclear weapons guide are later said
that it was like flying in an airplane
and going into the cockpit and finding
no one at the controls
I mean it was clear to me that the
country was not functioning the economy
was not working and that if nothing was
done and everyone feared that nothing
would be done it would end in
catastrophe even a famine wall
discussion
Gorbachev's halfway reforms had left the
economy in a tailspin
every essential was in short supply
[Music]
we've been doing every day to get
something sugar matches salt the stakes
really were very high economic situation
was absolutely was absolute disaster
inflation was about 20 percent a month
the shaft studentid the prices were
skyrocketing guider had to move very
fast
Gide I was now in charge of the entire
Russian economy and he was still only 35
he assembled a team of youthful
free-market reformers among them all 36
year old Anatoly Chubais
communist hardliners nicknamed them the
little boys in pink shorts Jeffrey Sachs
now 36 was called on to advise on
economic reform I course had the Poland
experience in mind Russia turned out to
be something quite different the
Parliament was dominated by Communists
and other parties that opposed reform
Godard was under remarkable political
attack from the first moment it wasn't
seven days after the start of reform
that the head of the Parliament called
for the resignation of the government
for example
[Music]
died our and his team wanted to use
economic reforms as a political weapon
to smash the old communist system before
it destroyed them
it was more a survival tactic how can we
destroy the Communists centrally
controlled economy let's destroy the
army let's destroy the KGB and let's
destroy centrally controlled planning
rather than how are we going to build an
economy New Year's Eve 1991 next morning
prices would be freed guide our reform
would directly affect the man and woman
in the street
it would also mean the end of everything
the Communists had stood for
next guide are abolished the Soviet law
that made private enterprise the
criminal activity guide are believed
that an effectively free market would
put an end to shortages he didn't have
long to wait I was driving to my office
on old square past deeds clinic the
children's show
and I saw a huge crowd of people I sent
my aides to find out what was going on
[Music]
in rigidly and they saw hundreds of
people with various kinds of goods Hakim
d'ottawa
they were holding up the decree on the
freedom of trail whilst trying to buy or
sell stuff so that's when I understood
that in 75 years it had not been
possible to extinguish this
entrepreneurial spirit that was one of
the pivotal points starting from then
there were no more shortages in Russia
your choose to DOMA Cazares I felt that
we were right and that market forces
worked even in this tortured economist
of the world
[Music]
the market may have been reborn but for
ordinary Russians reform meant higher
prices I hurried to a department store
to look to look at the faces of
Muscovites whether they would revolt
look in you know at all this
skyrocketing prices because gyda thought
that they would increase twofold
they increased twelvefold prices kept
rising the hardliners who controlled the
central bank made it much worse their
policies fueled inflation in Norilsk
factory workers like yuriy komarov were
cleaned out
[Music]
device talked about reform but under him
and guide are nothing improved
[Music]
we lived worse and worse and worse so
much for God's reforms
many North to earn the money to buy a
house and flat a car to save for pension
understand in one day you were left with
nothing
it was so sudden some people committed
suicide
[Music]
the inflation came 500% 600% 700 percent
the money simply went to the ashes
simply to nothing
the population was simply smashed by
that hyperinflation and that's
undermined all belief to the economic
changes
the collapse of the Soviet Union
reverberate around the world for India
it was the end of a road the ideal of
central planning shattered
this was telling proof that a command
type of economy was not as secure as we
had thought there for the collapse of
the Soviet Union was a major factor
which influenced thinking on economic
reforms in our country as in other
countries
planned by bureaucrats and cut off from
world trade India's economy had grown
stagnant inefficient and in debt in 1991
India stared bankruptcy in the face we
were borrowing heavily we had to mod
catch gold deposits our growth rate had
come to virtually zero all this added to
a very enormous crisis
in the midst of the crisis The Economist
man Mohan Singh received an urgent call
from the new prime minister he found
himself appointed finance minister well
I said to him that we are under words of
collapse our foreign exchange reserves
when I took over were no more than a
billion dollars that is roughly equal to
two weeks
imports the argument was quite simple we
were in the midst of an unprecedented
crisis it was time to think big
to the horror of his own political party
the prime minister gave the green light
for free market reform well the rank and
file of the party was simply bewildered
they did resist the kind of changes that
we brought about but we presented them
the hard facts that unless all this was
done the economy would simply collapse
India's permanent raj was ended state
control was reduced government subsidies
were cut tariffs and trade barriers
reduced and regulatory licenses
eliminated
we got government off the backs of the
people of India but - clearly off the
backs of India's entrepreneurs we
introduced more competition to release
the innovative spirit which was always
there in India
the economy turn around much sooner and
much more deeply than I had anticipated
Indian industry boom we created record
number of jobs we were able to control
inflation and the economy was growing at
a rate of seven percent per annum so our
critics were completely silenced
[Music]
in Russia the commanding heights of the
economy were still in the hands of the
state in a great idealistic move the
young reformers set out to democratize
state industries by simply giving them
away
[Music]
in charge of this program of
privatization was Anatoly Chubais oh the
70 year communist monopoly was about to
be overturned Russian citizens were
given vouchers which they could use to
acquire shares in privatized companies
we need millions of property owners and
not just a few millionaires all Russian
citizens workers pensioners and small
children will be given privatisation
vouchers worth ten thousand rubles there
was a problem not one company was ready
to be privatized
they had distributed 144 million
vouchers to the people but had no
practical idea on how to get companies
through the privatization process and
actually into public hands away from the
state
the young reformers asked Boris Jordan
one of the first foreign bankers to set
up shop in Moscow to find a company to
privatize but they had to move fast they
knew that if they didn't at least launch
the program by December 9th 1992 when
the Congress of people's deputies was
getting together the Communists were
gonna kill privatization
the young reformers were in a race
against time
[Music]
it was very tight if there wasn't gonna
be privatization there was gonna be no
market economy they narrowed the search
down to a business on the edge of Moscow
it was not exactly what Lenin would have
called the commanding heights but the
Bolshevik biscuit factory did bake
Russia's favorite cookie we had to
I wouldn't say bribe but incentivize
them we gave managers of their factories
and the employees of the factories about
50% of the stock in the company the
balance of the equity would be sold in
the public markets through these
vouchers we opened up the first official
auction of a Russian company to the
public on December 8 1992
[Music]
on the day of the auction fury that the
economic reforms boiled over in
Parliament
communist hardliners forced a vote of no
confidence in Gaddar I remembered very
well we'd already opened the auction and
I was sitting in the auction center I
was watching the television and I
watched guide art get removed communist
opposition had forced Yeltsin to
sacrifice guide are his replacement
Viktor Chernomyrdin was a product of the
old Soviet central planning system
there's no doubt that after guide our
was thrown out of the prime ministership
at the end of 1992 that the level of
corruption rose tremendously state
companies were sold off and the trade in
vouchers led to a fledgling stock
exchange a market economy was taking
hold but it was getting off to a shaky
start in Moscow speculation was rampant
in what some called the wild East
[Music]
a lot of societies have corruption
Russia had an elite that had grown up in
such an amoral environment under the
Soviet system that they really did
believe that property is theft
okay now we're in a private property
system we'll steal it and Russia had a
lot to steal
you had the oil the gas the nickel the
chromium the diamonds the gold this
extraordinary combination of huge
natural resource reserves and they were
in state hands the biggest companies the
major industries were still controlled
by their all-powerful managers former
Soviet upper lectures
known as the red directors they were
utterly opposed to the young reformers
and privatization the only way to
privatize the commanding heights of the
Russian economy was to wrest control
away from the red directors in Eastern
Europe the real democratic revolution
it was a real replacement of the
political elite in Russia the same
people changed the jackets and changed
the portraits in the rooms and instead
of saying a communism Lenin and five
years plan started to say market
democracy freedom I do remember one of
the first meeting with directors she's
very tough she's very tough they hate
the language we speak the head the face
we have negate everything which was
connected with us
this guy's it was the real orders of the
country I was fighting for the real
command heads in terms of who run the
economy who run the economy market were
the Soviet directors
[Music]
the vast factory complex at Norilsk was
to become a major battleground between
the red directors and a new kind of
Russia
Vladimir Putin was a buccaneering
businessman who quit his job in the
foreign ministry and within a few years
built a small trading company into one
of Russia's leading banks I decided to
become a businessman at the moment when
I understood that it is possible because
I grew in a country where it was not
possible and there existed even a
special article in a panel code of the
Soviet Union which punished
entrepreneuring activity battalions next
venture would lead some to see him as an
inspired entrepreneur others as a robber
baron
in 1995 he decided to make a play for
Norilsk Nickel but to take over no rules
meant going up against one of the most
powerful of the old red directors
Anatoly Filipov a lot of of Neuros the
hardest guys one of the most powerful
men in inertia but Annan who was at that
time a relatively unknown person in this
country went up against this guy the
roast nickel was the test case but Annan
needed allies these were the richest of
the new entrepreneurs they came to be
known and hated as the oligarchs by the
1995 we had the new business elite who
in my opinion were efficient or owners
and the qualified managers but they had
no property in their hands that's why it
was the struggle between old red
directors and new managers who gained
their money was it themselves to break
the power of the red directors the
oligarchs needed political support
it was politically very difficult to
withdraw the saddest power from the read
directors even the government and even
chip eyes were not strong enough to win
easily
this struggle it looked as if the
Communists were going to win the
upcoming 1996 presidential elections
yeltsin and the reformers had to find a
way to stop them
in the beginning of 1986 Yeltsin enjoyed
only 5% of popularity he definitely
needed financial assistance financial
resources from the rich people the
oligarchs the government and the
oligarchs needed each other and they
needed to move fast
the government feared a communist
comeback the oligarchs feared the loss
of their fortunes
the oligarchs hammered out a secret deal
that would enable them to acquire key
industries at a knockdown price the
Tannen proposed the privatization
program which today is still viewed as
exceptionally controversial the loan for
shares program that program entailed
Russian business giving the government
loans in return for taking the shares of
strategic assets as collateral in fact
what ended up happening is most of these
companies ended up getting sold back to
the guy that actually provided the loan
the oligarchs money would help Yeltsin
fight the presidential election in
exchange they wanted the commanding
heights
[Music]
the dilemma was not should we choose
this way of privatization or another way
which is more transparent more open more
public the idea was should we choose
this way or nothing
yes apparently monitors dilky the point
of the loans-for-shares deal was to
create a critical mass of powerful and
influential businessman whose primary
interest would be to prevent the
Communists from coming back
[Music]
with their media companies and wealth
the oligarchs backed the Olsens
re-election campaign singing and dancing
endlessly across Russia Yeltsin surged
ahead in the polls and to victory but
Annan entered Yeltsin's cabinet the
oligarchs direct voice in the Kremlin
[Music]
Potanin had won Norilsk Nickel and with
it a third of the world's nickel for a
company with annual sales of two and a
half million dollars for Tannen paid
just 170 million
I felt a great feeling of victory
several years before it was even
difficult to think about what struggling
with read directors the struggle was won
by us by those who came who who were
younger more active and more prepared
for competition many years later came
filling of great responsibility because
when you win you become responsible for
everything what is going on but it came
a little bit later to many the
loans-for-shares deal was more than a
scandal it was the theft of the century
but it was a price Yeltsin was willing
to pay to keep the Communists out the
task was not to distribute the property
between ten personal friends there were
no need for that the task was to give
the property to millions of people we
can say that it was artificially yes it
was cheap relatively cheap it was not
transparent yes but I think that it was
difficult to avoid maybe it was the only
way the goals are justifying the means
that's how the Bolsheviks made the
revolution in Russia and that's why it
is disaster always when you are using
the formula that the goals are
justifying the means you are destroying
the goals
in Yeltsin's Russia crony capitalism
thrived
for many reform came to mean corruption
inflation and inequality then in 1998
Russia defaulted on its debts in the
stock market crash the Yeltsin era ended
with his abrupt resignation on New
Year's Day 2000 by the start of the new
millennium
the decade of radical change was over a
world that not so long ago had looked to
socialism central planning and
protectionism now look to the market
it's breathtaking what's happened in the
last 20 years or less this as though the
whole world has changed its mind
everywhere in India China Asia in Latin
America and Europe in North America and
above all in the Communist world
governments have retreated from the
commanding heights of the economy having
thrown off communism the countries of
Eastern Europe continued to embrace free
markets
: as flourish what's driving post are
two million small businesses almost all
started after economic reform of all the
cases of shock therapy around the world
that in Poland worked just about the
best it really got the economy going
[Music]
businesses like Sophia Vegeta Jim now
employ over half of the country's
workforce and produced close to seventy
five percent of each total output after
1990 lots of companies and foreign firms
appeared in Poland the forecasts were
very good and I think they have come
true but we poles need time for
everything to fall into place
[Music]
in Latin America the result of reform
has been mixed Chile continues to set
the pace the democracy it follows
free-market policies and is one of the
world's seven fastest-growing economies
the first Democratic president after
Finnish ed a maintained the reforms and
also try to improve of them it's not
something of the right wing of the
left-wing party
it's simply some economic policies now
to learn that took some time Bolivia is
still poor but it has been growing many
people would say well we're still poor I
would say to them Bolivia before we
stabilized the economy was a poor
country with hyperinflation Bolivia
after we stabilized the economy is a
poor country with stability
I think there is some disillusionment in
latinamerica Lert they have had problems
despite the reforms getting to a steady
high rate of growth is a difficult thing
and it certainly requires more than
sorting out your inflation problem
[Music]
and now we see as a financial collapse
in Argentina
for several years Argentina looked like
the poster boy for economic reform but
it turned out that the reforms were
quite incomplete country ran up huge
international debts in 2002 it had an
economic meltdown at the end of the day
the strains were too much and now we see
a great deal of political turmoil
raising all kinds of questions for the
future
[Music]
in India nari on Bertie no longer needs
50 trips to Delhi for permission to
import one computer instead he has built
one of the world's biggest software
companies India's economy has loosened
up and it is growing
well it did work I think it certainly it
did work and what is interesting is that
all the parties that criticized the
party that introduce reforms are now
taking forward the stirrers reforms so I
think 91 to 2000 has shown that the
economic liberalisation which started
out of compulsion has ended up being a
process that is being driven by
conviction all this is brought about a
sea change in fact the nobody in India
today who would question the correctness
of the decision to open up India's
economy even the Communists grudgingly
can see that this is the right path
in Russia ironically the 1998 stock
market crash and the default on debts
may have been a turning point
a second chance for Russia's still new
market economy
under President Putin the institutions
of a market economy strengthen and the
oligarchs were reigned in Russia has
changed a lot since the loans-for-shares
deal of the mid 90s it's had strong
economic growth over the last several
years companies have modernized and a
lot of the reform legislation that
should have been done five or six or
seven years ago has finally been enacted
I remain cautiously optimistic but even
if Russia gets out of this mess even if
democracy survives even if all market
reforms take root and all of that is
possible the 1990s was so costly
unnecessarily that I'll never be able to
look at it and feel that gee it all
ended up well in the end the problems
are still there the problems of
inadequate health care all the way to
corruption but it's a it's a society
that's that's changing
[Music]
President Putin sees Russia's future is
being part of the world economy
[Music]
I'm looking at my son who is 19 years
old and I'm looking at other people and
I am amazed they are ready to live in
this global environment these are the
people absolutely free of any old
stereotypes they don't remember
communism my son is coming home and
asking me mom can you tell me what
Marxism is we spent only ten years after
collapse of communism and my son does
not know what Carmen is Meno Marxism is
the world had indeed changed its mind
capitalism was now the rule almost
everywhere the stage was set for a
single global marketplace woven together
by trade technology and investment
the era of globalization had begun
[Music]
next time on commanding Heights today
the technological world in which we live
it's possible to do in Bangalore what is
being done in Silicon Valley the promise
and the perils of a global economy all
these people who were decided there was
no risk anywhere panicked and decided
there's got to be massive risk
everywhere the new rules of the game
next time on commanding heights watch
all of commanding heights online at
pbs.org this enhanced NetCast links to
an interactive time map country reports
economic data and important full-length
interviews about the future world
economy commanding heights video set and
book are available from wgbh boston
video so place an order please call
1-800 to five five nine four two four
[Music]
but they had to move fast
[Music]
they knew that if they didn't at least
launch the program by December 9th 1992
when the Congress of people's deputies
was getting together the Communists were
gonna kill privatization the young
reformers were in a race against time
[Music]
it was very tight if there wasn't gonna
be privatization there was gonna be no
market economy they narrowed the search
down to a business on the edge of Moscow
it was not exactly what Lenin would have
called the commanding heights but the
Bolshevik biscuit factory did bake
Russia's favorite cookie we had to I
wouldn't say bribe but incentivize them
we gave managers of their factories and
the employees of the factories about 50%
of the stock in the company the balance
of the equity would be sold in the
public markets through these vouchers we
opened up the first official auction of
a Russian company to the public on
December 8 1992
[Music]
on the day of the auction fury that the
economic reforms boiled over in
Parliament
communist hardliners forced a vote of no
confidence in Gaddar I remembered very
well we'd already opened the auction and
I was sitting in the auction center I
was watching the television and I
watched guide art get removed communist
opposition had forced Yeltsin to
sacrifice guide are his replacement
Viktor Chernomyrdin was a product of the
old Soviet central planning system
there's no doubt that after died or was
thrown out of the prime ministership at
the end of 1992 that the level of
corruption rose tremendously state
companies were sold off and the trade in
vouchers led to a fledgling Stock
Exchange a market economy was taking
hold but it was getting off to a shaky
start in Moscow speculation was rampant
in what some called the wild East
[Music]
the John Templeton Foundation the Smith
Richardson Foundation the Corporation
for Public Broadcasting and by
contributions to your PBS station from
viewers like you thank you
[Music]
much of the world once modeled itself on
the Soviet Union
here Lenin's revolution industrialised a
backward country within a single
generation
the Soviet system ruthless and
centrally-planned gave birth to vast
industrial complexes like norisse
[Music]
naruse symbolized every stage of Soviet
economic history from the original
prison camp and the beginnings of Soviet
industrialization
right up to the collapse of the economy
in the 1990s
[Music]
so much of its history had been tied up
with the fact that it was a prison camp
even in the early 1950s a hundred
thousand political prisoners were
working in its mines and factories
millions wrote the slow train to the
prison carrots
Vasiliy Rome Ashton's crime against the
state was to check out the wrong book
from the public library
varied they sent me to nourish after the
trial the trial lasted about 10 minutes
my wife and I said our goodbyes
[Music]
the prisoners slave labor became a
crucial component of the Soviet economy
[Music]
no yet devotion when they took us to
work
they'd say attention you enemies of the
people a step to the left or to the
right and we will shoot you without
warning a chill went up my spine and I
thought you are the enemies of the
people who certainly were
doesn't realize it's about to reach a
freefall and it did go into that
freefall
[Music]
in August 1991 diehard communists staged
a coup
Boris Yeltsin became the voice of
democratic resistance the coup collapsed
Gorbachov survived the plot but his
prestige was destroyed and the Soviet
Union's days were numbered the end of
December of 1991 Mikhail Gorbachev went
on Soviet television he told his viewers
that the Soviet Union would within a few
days ceased to exist legally after seven
decades the Soviet Union was over it was
finished fade to black
[Music]
the president of Russia was Boris
Yeltsin unlike Gorbachev Yeltsin wanted
to move fast
he chose the young reformer yog or guide
R as the man to turn Russia into a
market economy for guide our it was a
shock there was no money in the Treasury
there was no gold there was not even
enough grain to get through the winter
it was unclear who is even in charge of
the nuclear weapons guide are later said
that it was like flying in an airplane
and going into the cockpit and finding
no one at the controls
I mean it was clear to me that the
country was not functioning the economy
was not working and that if nothing was
done and everyone feared that nothing
would be done it would end in
catastrophe even a famine cheap wool
discussion Gorbachev's halfway reforms
had left the economy in a tailspin every
essential was in short supply
[Music]
we've been queuing every day to get
something sugar matches salt the steaks
was stand against communist rule they
had struck against the price rises and
food shortages caused by a crumbling
economy
their leader was an electrician named
lek valensa
I use binoculars of New Journalism the
country was so much in debt with the
West refusing to lend us anymore
that the whole system was failing have a
food service perigee it was more and
more inefficient and everybody even the
Communists knew it black valensa climbed
the shipyard gate to announce a
momentous victory the workers had forced
the government to recognize solidarity
the free labor union
it's your school is a resinous Amazonas
young schism
[Music]
[Applause]
has permission I thought they didn't
know what they were fighting for I
thought they were just fighting for a
pay rise only then did I learn it was
all about freedom showers over 10
million poles joined solidarity under
valances leadership solidarity became
the main opposition to communism
but in 1981 after a year-and-a-half of
strikes and unrest the government
declared martial law Valenza was placed
under house arrest
when Thatcher visited Poland in 1988 she
demanded that the communist government
allow her to meet lek Valencia you
didn't say no to mrs. Thatcher no-one
refused her so her noticing us and
demanding a meeting with me and the
others that was a crucial event
[Music]
she came into the city of Gdansk on
board a small ship and as it went past
the shipyards all the cranes of the
dockside was lined with shipyard workers
all cheering and waving and one began to
sense here was an extraordinary
experience in the making
[Music]
not seen yet the shipyard workers were
not only government budgets were
balanced we didn't use highly
sophisticated economic theory to deal
with hyperinflation we just use very
simple things such as from now on the
government will only spend what it gets
you get one peso spend one peso you get
two pesos spend two pesos if we don't
have it we don't spend it no borrowing
from the central bank and therefore the
central bank did not have to print money
shock therapy
meant that the price of essentials
transport food fuel all shut up
until then people had thought that only
a military dictatorship like Chile's
could impose such tough measures without
tearing society apart
Bolivia may be a small country but it
had a very big impact in terms of
kick-starting reform throughout Latin
America in Brazil a former professor who
actually used to teach the dependency
theory launched a program of economic
reform that looked a lot like shock
therapy Argentina was suffering from
20,000 percent inflation and the new
president of that country said you know
we've seen this movie before pro-market
reforms could be implemented and they're
a democracy and we demonstrated that it
was possible here in Argentina
[Music]
all across Latin America governments
began to sit up and take notice
I think the Bolivian experience did have
influence the fact that we did it in
democracy we did it without great social
violence had impact on economic thinkers
and on politicians in late 1985 and as
we were struggling late into the night
with the problem he said you know that
this is extraordinarily hard but what's
happening here
this is going to have to happen all
through Latin America
I watched it unfold one country after
another it is a curious fact of history
that what happened in Bolivia was to
have a direct impact on the frozen
economies of Eastern Europe
I was approached by a Polish government
official who had watched the Bolivian
reforms and then had seen the work that
I had done in Argentina and Brazil
making over manned state-owned
industries efficient more profitable
meant wide scale layoffs for Poland's
blue-collar workers when I became the
prime minister the euphoria of
transition was almost over
we had 20,000 strikes sometimes
organized by my former colleagues from
solidarity movement solidarity began to
lose support as workers felt the pain of
reform I was asked to go to some
factories to meet with workers to try to
explain what my vision of this might be
we're scientists
in the beginning we were made to believe
that it wouldn't take long for things to
get better sucks sucks gave us a rosy
vision for the future of our economy
the interviews christen found out that
the program imposed on us from the
outside most harmed precisely those
poles who had contributed so much to
political freedom initiative ownership
litany but elsewhere the market was
flourishing tens of thousands of small
businesses sprang up and the Polish
economy began to move you suddenly had
thousands of people trading the same
products in front of the state-owned
shop but at a much lower price this is
phenomenal
because it shows enormously
entrepreneurial drive of the Polish
people
when you have your five minutes take
when the Polish people finally got that
opportunity they took the chance they
used the chance at the Soviet embassy in
Warsaw a special observer from Moscow
had been monitoring the economic reform
Soviet embassy in Warsaw had a feeling
that this is a disaster for them they
didn't want to send my telegrams to
Moscow I was describing what's going on
there and they will completely disagree
I was very supportive and they were very
negative I was sending in the analysis
to Gorbachev balsa Roach is doing in the
right thing for Paul that's what I'm
saying
Gorbachev asked javelins
to write up a plan for repression
devoting more than a third of its entire
economy to military spending and the
analyst is that new account put such a
huge pillar because no nobody would then
believe it later
economists realized that the Soviet
Union had been spending at least 50% of
the military gordievsky's information
was shared with President Reagan and the
Americans and he was able to play behind
the scenes a road of extraordinary
influence
[Music]
thanks to gordievsky's intelligence
Western leaders realized that Soviet
military might rested on a crumbling D
country the communist Administration
reported that the economy was growing it
was not the case the economy started to
go down all the time and the deficit was
covered only with the help of the oil
prices and extra money made it possible
to claim the they were successful and
they buddies in the world
Soviet satellites circled the world and
nuclear submarines prowled the oceans
[Music]
but after seven decades of communism the
real story of the Soviet economy was one
of empty shelves and a standard of
living that was a fraction of Western
yours
[Music]
so with economy doors neither nor it was
not a Stalinist economy anymore but it
was not a market economy
so it was no water no fire it was a mess
an independent minded young economist
grigoriev Lenski wrote a report on why
workers in state mines were so
unproductive the people don't want to
work the people have no incentives the
economy inside which the people have no
incentives have no future
[Music]
so you can do two things
take it and gone and put this gun to his
head like it was at the Stalin time or
you have to give him incentives because
he wants to improve the life of his
family and he can't
factory managers at Norilsk could see
the economy with ability to earn a
shortage economy my father waited 15
years to buy a car
[Music]
take India's beloved ambassador car it
is made by Hindustan Motors which
started manufacturing in the same year
as Japan's Toyota 50 years later Toyota
makes 5 million cars a year Hindustan
sells 18,000 ambassadors and still to
the same design if you have a controlled
economy cut off from the rest of the
world by infinite protection nobody has
any incentive to innovate nobody has any
incentive to increase productivity to
bring new ideas overprotected /
administered / planned the permit Raj
was quite little a break on the Indian
account
in Latin America radically different
leaders shared India's suspicions of the
world economy in the 1940s and 50s it
was Argentina's Juan Peron and his wife
Evita
[Applause]
in the 1960s it was communist Cuba's
charismatic Fidel Castro and in the
1970s it was Chile's Marxist President
Salvador Allende
though rich in raw materials Latin
America seemed doomed to perpetual
poverty the dependency theory of
economic development seemed to offer a
way out
the dependency theory said that if you
want to get high economic growth in the
country what you need to do is put up
barriers tariffs that restrict the flow
of imports into the country develop and
build your own domestic industries and
that if you don't do that you're going
to be victimized by world trade the
theory was very attractive and said you
would develop on your own and you would
be more self-sufficient
the reality is that you cut yourself off
from clothes of Technology clothes of
investment from clothes of know-how and
instead of getting ahead you were
falling back because they are not
threatened by competition you create
very lazy non competitive companies that
produce not very good goods at higher
prices it may create jobs here and there
but in the long term it may Yeltsin's
cabinet the oligarchs direct voice in
the Kremlin Potanin had one Norilsk
Nickel and with it a third of the
world's nickel for a company with annual
sales of two and a half billion dollars
pretendin paid just 170 million
I felt the great feeling of victory
several years before it was even
difficult to think about what struggling
with read directors the struggle was won
by us by those who came who were younger
more active and more prepared for
competition many years later came
feeling of great responsibility because
when you win you become responsible for
everything what is going on but it came
a little bit later to many the
loans-for-shares deal was more than a
scandal it was the theft of the century
but it was a price Yeltsin was willing
to pay to keep the Communists out the
task was not to distribute the property
between ten personal friends there were
no need for that the task was to give
the property to millions of people we
can say that it was artificially yes it
was cheap relatively cheap it was not
transparent yes but I think that it was
difficult to avoid it maybe it was the
only way the goals are justifying the
means that's how the Bolsheviks made the
revolution in Russia and that's why it
is disaster always when you are using
the formula that the goals are
justifying the means you are destroying
the goals
in Yeltsin's Russia crony capitalism
thrived for many reform came to mean
corruption inflation and inequality then
in 1998 Russia defaulted on its debts in
the stock market crash the Yeltsin era
ended with his abrupt resignation on New
Year's Day 2000 by the start of the new
millennium the decade of radical change
was over a world that not so long ago
had looked to socialism central planning
the generals preferred the control
economy that is an economy that would
obey my officiant a passively Xavier via
an influential businessman sympathetic
to the hunter was trying to push the
military in the direction of the free
market so I call them econ Friedman and
invite him to come to Chile so Milton
Friedman the most famous free-market
economists in the world came to lecture
in Chile I went down to Chile and spent
five days giving a series of lectures on
Chilean problem particularly the problem
of inflation and how they should proceed
to do something about
Friedman's first talk was at the
Catholic University his theme the
inescapable link between free markets
and freedom the emphasis of that talk
was that free markets would undermine
political centralization and political
control he said that you cannot have a
repressive government for long within a
genuinely free economic system
[Music]
but Friedman was also persuaded to visit
the grim conference centre from which
Pinochet ruled Chile
Friedman told Pinochet that he needed to
take decisive and immediate action to
defeat inflation
Friedman say well I'm going to give you
an example if you cut the tail to a dog
in pieces step by step you will kill the
dog this is the same as inflation you
have to cut it at once and then the
country will start moving Milton's
presence probably helped to stiffen the
spine of people who were trying to
insist on better economic policies
that's the period when the takeoff of
the Chilean economy really the major
reforms were made
the hunter called on the Chicago boys to
rescue the economy
500 state-owned businesses were
privatized government budgets were cut
import tariffs were swept away the
markets were given free rein
[Music]
oh yeah
and better-suited plus in their basic
[Music]
but by 1985 it was not just economic
students who were asking what was wrong
when macaé Gorbachev became leader of
the Soviet Union he was appalled by the
economic decay does liebelei says that
Commission there was a government
Commission to examine the problem of
women's pantyhose imagine a country that
flies into space launches sputnik's
creates such a defense system and it
cancels the problem of women's pantyhose
there is no toothpaste no soap powder
not the basic necessities of life it was
preposterous and embarrassing to work in
such a government what the completest
Mikhail Gorbachev was what the Soviet
Union had been waiting for a new young
dynamic leader who was going to reform
the system but that system had been
propped up for a decade and a half by
high oil prices and just after he came
in the price of oil collapsed which
meant that the economic problems faced
in the Soviet Union were even more
enormous Gorbachev's attempt to
restructure the economy was called
perestroika perestroika perestroika was
a reform that aimed at gradual political
change to create an infrastructure for
market economics we had several
generations with no experience of
markets you can't just announce the
markets and see them appear overnight I
was actually saying it will take a
generation for it to start working he
started to allow a certain amount of
private enterprise but it was really a
very uneven process he ended up removing
many the tools of control of central
planning but didn't really replace them
with anything else
Gorbachov faced mounting pressure from
the West
the US president believed in the
economic philosophy of Milton Friedman
and Chicago
Ronald Reagan was not alone he had a
political soulmate in Margaret Thatcher
Britain's Prime Minister had already
embarked on a radical free-market
economic revolution at home Thatcher and
Reagan were determined to go on the
ideological offensive their political
rhetoric began to heat up
what I'm describing now is a plan and a
hope for the long-term the march of
freedom and democracy which will leave
Marxism Leninism was called on to advise
on economic reform I of course had the
Poland experience in mind Russia turned
out to be something quite different the
Parliament was dominated by Communists
and other parties that opposed reform
guy dog was under remarkable political
attack from the first moment it wasn't
seven days after the start of reform
that the head of the Parliament called
for the resignation of the government
for example
[Music]
dai dire and his team wanted to use
economic reforms as a political weapon
to smash the old communist system before
it destroyed them
it was more a survival tactic how can we
destroy the Communists centrally
controlled economy let's destroy the
army let's destroy the KGB and let's
destroy centrally controlled planning
rather than how are we going to build an
economy New Year's Eve 1991 next morning
prices would be freed guide our reform
would directly affect the man and woman
in the street
it would also mean the end of everything
the Communists had stood for
next guide are abolished the Soviet law
that made private enterprise for
criminal activity guide are believed
that an effectively free market would
put an end to shortages he didn't have
long to wait I was driving to my office
on old square past it's cleaner the
children's show
and I saw a huge crowd of people I sent
my aides to find out what was going on
[Music]
immediately and they saw hundreds of
people with various kinds of goods
akima d'ottawa they were holding up the
DES tree on the freedom of trail whilst
trying to buy ourselves laughs so that's
when I understood that in 75 years it
had not been possible to extinguish this
entrepreneurial spirit that was one of
the pivotal points starting from then
its main message military threat from
military might we all fought the Soviet
Union was still a vast powerful economy
huge military power a threat to world
peace determined to extend its influence
around the world
[Music]
Soviet influence was everywhere in
Eastern Europe
in Africa
[Music]
and Latin America socialism planning
state control government ownership these
became the gospel
in Asia the apparent success of
communist China seemed to show the way
[Music]
but the truth about the Soviet economy
lay concealed behind the iron curtain
[Music]
minefields barbed wire searchlights and
lookout towers sealed the Soviet block
off from the outside world in the 1980s
British intelligence recruited a Russian
double agent to penetrate this wall of
secrecy
but Soviet intelligence the KGB became
suspicious and put him under house
arrest
[Music]
news reached London that it stopped spy
was in mortal danger
Charles pol was foreign policy advisor
to Prime Minister Margaret Thatcher the
news of the attention to spring him came
to me in Downing Street I couldn't tell
anyone else because no one else knew
about it
it was so sensitive that Paul needed the
Prime Minister's personal approval to
activate an escape plan only Gordievsky
was perhaps the most magical agent
because he understood the Soviet system
from inside in Moscow the net was
closing in on Oleg Gordievsky at at that
time I decided to use my secret
long-standing plan of escape I sent a
signal to the British intelligence
Gordievsky evaded his KGB Watchers and
made his way to a forest near the
Finnish border we lived worse and worse
so much for God's reforms
when you go north to earn the money to
buy a house a flat a car to say for
pension understand in one day you were
left with nothing
it was so sudden some people committed
suicide
[Music]
the inflation came 500% 600% 700 percent
the money simply went to the ashes
simply to nothing
the population was simply smashed by
that hyperinflation and that's
undermined all belief to the economic
changes
the collapse of the Soviet Union
reverberate around the world for India
it was the end of a rule the ideal of
central planning shattered
this was telling proof that a command
type of economy was not as secure as we
had thought therefore the collapse of
the Soviet Union was a major factor
which influenced thinking on economic
reforms in our country as in other
countries planned by bureaucrats and cut
off from world trade India's economy had
grown stagnant inefficient and in death
in 1991 India stared bankruptcy in the
face we were borrowing heavily we had to
market gold deposits her growth rate had
come to virtually zero all this added to
a very enormous crisis
in the midst of the crisis The Economist
Manmohan Singh received an urgent call
from the new prime minister he found
himself appointed finance minister well
I said to him that we are under words of
collapse our foreign exchange reserves
when I took over were no more than a
billion dollars that is roughly equal to
two weeks
imports the argument was quite simple we
were
the economic reforms in Chile may have
had little immediate impact on the world
but the ideas behind them were gaining
momentum in the Soviet Union where the
age of leadership was dying off and the
economy was more abundant people were
starting to question the system by the
1980s it was becoming clear to the
better and form that the Soviet system
really wasn't working but they couldn't
really talk about it publicly they
talked about it in their kitchens they
talked about it in small groups but it
was not something that could be talked
about in the public in Leningrad the
cradle of Lenin's revolution an economic
student was asking if the solution lay
not in Marxism but in markets I'm
interesting in what is happen in the
economy I start to feel that something
wrong there is some illness in the
economy but I try to discuss it with my
professors I get no feedback you feel
that either the world around you crazy
or you yourself crazy
Tobias helped to organize seminars far
from the prying eyes of the secret
police
[Music]
one of his co-conspirators was a young
economist from Moscow we were all in our
30s researchers or teachers who
specialized in the Soviet economy
dreaming solution we could see how it
worked and who were well aware of its
weak points you've alleged you have seen
tedious until I read books by Friedman
and Hayek with great interest
they were our inspiration
on that stage definitely we do
understand that this thing's quite quite
risky yet the some of our sessions took
place behind closed doors
we didn't trust everyone at the seminar
so we kept some people out our union our
discussions were not revolutionary but
they were far beyond the limit of what
was politically permissible with us were
[Music]
after a day arguing the pros and cons of
a market economy they would sit around
the campfire and tell jokes
there was the idea that Gator will
become prime minister maybe which sounds
at the time absolutely crazy and
everybody laughing and another guy said
that yeah he will be Prime Minister or
he will be prisoner
[Music]
clear to the better inform that the
Soviet system really wasn't working but
they couldn't really talk about it
publicly they talked about it in their
kitchens they talked about it in small
groups but it was not something that
could be talked about in the public in
Leningrad the cradle of Lenin's
revolution an economic student was
asking if the solution lay not in
Marxism but in markets I'm interesting
in what is heaven in the economy I start
to feel that something wrong there was
some illness in the economy but I try to
discuss it with my professors I get no
feedback you feel that either the world
around you crazy or you yourself crazy
Tobias helped to organize seminars far
from the prying eyes of the secret
police
[Music]
one of his co-conspirators was a young
economist from Moscow Burma we were all
in our 30s researchers or teachers who
specialized in the Soviet economy Trina
said it's become we could see how it
worked and who were well aware of its
weak points herbology you have century
associative I read books by Friedman and
Hayek with great interest
they were our inspiration teacher
on that stage definitely we do
understand that this thing's quite quite
risky yep
the some of our sessions took place
behind closed doors
we didn't trust everyone at the seminar
so we kept some people out our union our
discussions were not revolutionary but
they were far beyond the limit of what
was politically permissible with us were
[Music]
after a day arguing the pros and cons of
a market economy they would sit around
the campfire and tell jokes
there was the idea that Gator will
become prime minister maybe which sounds
at the time absolutely crazy and
everybody laughing and another guy said
that yeah he will be Prime Minister or
he will be prisoner
[Music]
but by 1985 it was not just economic
students who were asking what was wrong
when Mikhail Gorbachev became leader of
the Soviet Union he was appalled by the
economic decay does liebelei says that
Commission there was a government
Commission to examine the problem of
women's pantyhose imagine a country that
flies into space launches Sputnik
screaming the dictatorship
the brutality of Pinochet's regime left
little enthusiasm for economic change in
the rest of Latin America
the fact that the Pinochet regime was
politically unsavory the loud the left
to make an association between market
reforms on the one hand and repressive
authoritarian governments on the other
and that was a terribly damaging
connection
the intellectually leaders were on the
side of IND not on the side of penny
sure they regarded me as a traitor for
having been willing to talk in Chile
Friedman then became a figure of hate
and they organized demonstrations
against him wherever he went and this
went on for a period of years the
protests reached their climax when
Friedman was awarded the Nobel Prize in
1976
the Nobel ceremonies in Stockholm
I was subject to abuse in the sense that
there were large demonstrations against
me there was a concerted effort to tar
and feather men in the minds of many
people the reforms in Chile were tainted
by the political caste of the regime
that did set back the cause of liberal
economics it made other countries more
resistant to the idea of market reforms
and they otherwise would have been
[Music]
the economic reforms in Chile may have
had little immediate impact on the world
but the ideas behind them were gaining
momentum in the Soviet Union where the
Aged leadership was dying off and the
economy was moribund people were
starting to question the system by the
1980s it was becoming clear to the
better informed that the Soviet system
really wasn't working but they couldn't
really talk about it publicly they
talked about it in their kitchen as they
talked about it in small groups but it
was not something that could be talked
about in the public in Leningrad the
cradle of Lenin's Revolution an economic
student was asking if the solution lay
not in Marxism but in markets I'm
interesting in what is heaven in the
economy I start to feel that message to
pull from 1988 mrs. Thatcher had agreed
to meet the communist leadership
provided she could also visit the port
of Gdansk
almost a decade earlier in 1980 shipyard
workers here in Gdansk had taken a stand
against communist rule they had struck
against the price rises and food
shortages caused by a crumbling economy
their leader was an electrician named
luck valensa
I use binoculars an Iranian the country
was so much in debt with the West
refusing to lend us anymore
that the whole system was failing our
sorrows Balaji it was more and more
inefficient and everybody even the
Communists knew it lack Valenza climbed
the shipyard gate to announce a
momentous victory the workers had forced
the government to recognize solidarity
the free labor union
is your school yes are there is an
Eskimos on Miss young skis October
[Music]
[Applause]
evidences permission I thought they
didn't know what they were fighting for
I thought they were just fighting for a
pay rise only then did I learn it was
all about freedom
ten million poles joined solidarity
under valances leadership solidarity
became the main opposition to communism
but in 1981 after a year-and-a-half of
strikes and unrest the government
declared martial law Valenza was placed
under house arrest
when Thatcher visited Poland in 1988 she
demanded that the communist government
allow her to meet lek Valencia you
didn't say no to mrs. Thatcher no-one
refused her so her noticing us and
demanding a meeting with me and the
others that was a crucial event
[Music]
she came into the city of Gdansk on
board a small ship and as it went past
the shipyards all the cranes of the
dockside was lined with shipyard workers
all cheering and waving the oligarchs
hammered out a secret deal that would
enable them to acquire key industries at
a knockdown price the Tannen proposed
the privatization program which today is
still viewed as exceptionally
controversial the loan for shares
program that program entailed Russian
business giving the government loans in
return for taking the shares of
strategic assets as collateral in fact
what ended up happening is most of these
companies ended up getting sold back to
the guy that actually provided the low
the oligarchs money would help Yeltsin
fight the presidential election in
exchange they wanted the commanding
heights
[Music]
the dilemma was not should we choose
this way appreciation or another way
which is more transparent more open more
public the idea was should we choose
this way or nothing
it's a prayer appeal to still key the
point of the loans-for-shares deal was
to create a critical mass of powerful
and influential businessman whose
primary interest would be to prevent the
Communists from coming back
[Music]
with their media companies and wealth
the oligarchs back the Olsons reelection
campaign singing and dancing endlessly
across Russia Yeltsin surged ahead in
the polls and to victory but Annan
entered yeltsin's cabinet the oligarchs
direct voice in the Kremlin Potanin had
won Norilsk Nickel and with it a third
of the world's nickel for a company with
annual sales of two and a half million
dollars for tannin paid just 170 million
I felt a great feeling of victory
several years before it was even
difficult to think about what struggling
with read directors the struggle was won
by us by those who came who who were
younger more active and in 1987
President Reagan carried this war of
words to the most symbolic stretch of
the Iron Curtain the Berlin Wall general
secretary Gorbachev if you seek peace if
you seek prosperity for the Soviet Union
and Eastern Europe if you seek
liberalization come here to this gate
mr. Gorbachev open this gate
mr. Gorbachev tear down this wall
[Applause]
Toby well fashion at the designates
cousin that means an album Margaret
Thatcher carried the free-market message
to pull 1988
mrs. Thatcher had agreed to meet the
Communist leadership provided she could
also visit the port of Gdansk
almost a decade earlier in 1980 shipyard
workers here in Gdansk had taken a stand
against communist rule they had struck
against the price rises and food
shortages caused by a crumbling economy
their leader was an electrician named
lek valensa
I use the articles and journals the
country was so much in debt with the
West refusing to lend us anymore that
the whole system was failing
Alice Balaji it was more and more
inefficient and everybody even the
Communists knew it luck Valenza climbed
the shipyard gate to announce a
momentous victory the workers had forced
the government to recognize solidarity
the free labor union
is your school is our there's an Eskimos
old Miss young schism
[Music]
[Applause]
I thought they didn't know what they
were fighting for I thought they were
just fighting for a pay-rise only then
did I learn it was all about freedom 10
million poles joined solidarity under
valances leadership solidarity became
the main opposition to communism but in
1981 after a year and a half of strikes
and unrest after a year year and a half
of military government
you still had 20% per month
built-in inflation that wouldn't go away
until something structurally changed
one of those who plotted the coup went
to talk to Pinochet face to face poor
guilty I told him you've been called
Chile Savior but you will go down in
history as the man that buried Chile
inter-cell Tamala is a surname element
he was very shocked by this recent era
interlock or entire children and he said
okay you've got 48 hours to come up with
the national plan to fix the economy a
transaction cmr plan the reverberation
economic the only people who had a
serious blueprint of how to get our
lives were this group known as the
Chicago boys the Chicago boys were a
group of economists at Chile's Catholic
University who had been sent to the
University of Chicago as exchange
students there they absorbed the ideas
of the Chicago School of Economics with
its almost revolutionary belief in free
markets when characterized Chicago
school was a strong belief in minimal
government and an emphasis on free
market as a way to control the economy
professors like arnold harberger and
milton friedman taught their students to
mistrust state planning and government
control when the Chicago boys returned
to Chile they brought with them ideas
that were a direct challenge to the
dependency theory this small group
stayed together through the I end eight
years and they used to meet I think
every Tuesday for lunch
and they would keep kind of a running
document which said how they would
reform this economy how this economy has
to be reformed what is to be done to get
out of the swamp that they were putting
themselves in policy unfortunately due
to the idiosyncrasies of the military
mind
the generals prefer the control economy
that is an economy
obey orders en la forma my officiant a
possibly Xavier vo an influential
businessman sympathetic to the hunter
was trying to push the military in the
direction of the free market so I called
a Milton Friedman and invite him to come
to Chile so Milton Friedman my job
compared with your job is much easier
and you would be able to enjoy your job
as head of the Soviet Union much more if
you had a market economy in 1987
President Reagan carried this war of
words to the most symbolic stretch of
the Iron Curtain the Berlin Wall general
secretary Gorbachev if you seek peace if
you seek prosperity for the Soviet Union
and Eastern Europe if you seek
liberalization come here to this gate
mr. Gorbachev open this gate
mr. Gorbachev tear down this wall
you
[Applause]
they'll be well fashiona the desert is
awesome champions and out of Margaret
Thatcher carried the free-market message
to pull from 1988
mrs. Thatcher had agreed to meet the
Communist leadership provided she could
also visit the port of Gdansk
almost a decade earlier in 1980 shipyard
workers here in Gdansk had taken a stand
against communist rule they had struck
against the price rises and food
shortages caused by a crumbling economy
their leader was an electrician named
luck valensa
I use binoculars and journals the
country was so much in debt with the
West refusing to lend us anymore that
the whole system was failing our sorrows
Balaji it was more and more inefficient
and everybody even the Communists knew
it luck valenza climbed the shipyard
gate to announce a momentous victory the
workers had forced the government to
recognize solidarity the free labor
union
is your school is our laziness mores old
Miss young schism
[Music]
[Applause]
I thought they didn't know what they
were fighting for I thought they were
just fighting for a pay rise only then
did I learn it was all about freedoms I
was over ten million poles joined
solidarity uh no borrowing from the
central bank and therefore the central
bank did not have to print money shock
therapy meant that the price of
essentials transport food fuel all shot
up
until then people had thought that only
a military dictatorship like Chile's
could impose such tough measures without
tearing society apart
Bolivia may be a small country but it
had a very big impact in terms of
kick-starting reform throughout Latin
America in Brazil a former professor who
actually used to teach the dependency
theory launched a program of economic
reform that looked a lot like shock
therapy Argentina was suffering from
20,000 percent inflation and the new
president of that country said you know
we've seen this movie before pro-market
reforms could be implemented and they're
a democracy and we demonstrated that it
was possible here in Argentina
[Music]
all across Latin America governments
began to sit up and take notice
I think the Bolivian experience did have
influence
the fact that we did it in democracy we
did it without great social violence had
impact on economic thinkers and on
politicians in late 1985 and that's we
were struggling late into the night with
the problem he said you know this is
extraordinarily hard
but what's happening here this is going
to have to happen all through Latin
America
I watched it unfold one country after
another
it is a curious fact of history that
what happened in Bolivia was to have a
direct impact on the frozen economies of
Eastern Europe
I was approached by a Polish government
official who had watched the Bolivian
reforms and then had seen the work that
I had done in Argentina and Brazil and
finally asked me well would I go to
Poland and help
[Music]
the poles themselves feared that they
were descending into starvation these
shops were utterly empty for miles I
would see a woman just standing on the
street sobbing
thanks to gordievsky's intelligence
Western leaders realized that Soviet
military might rested on a crumbling
economy the colonist administration
reported that the economy was growing it
was not the case the economy started to
go down all the time and the deficit was
covered only with the help of the oil
prices and the extra money made it
possible to claim the labor successful
and they were deceiving the world
Soviet satellites circled the world and
nuclear submarines prowled the oceans
[Music]
but after seven decades of communism the
real story of the Soviet economy was one
of empty shelves and a standard of
living that was a fraction of Western
yours
[Music]
Soviet economy was neither nor it was
not Estelle inist economy anymore but it
was not a market economy
so it was no water no fire was a mess
an independent minded young economist
grigory yavlinsky wrote a report on why
workers in state mines were so
unproductive the people don't want to
work the people have no incentives the
economy inside which the people have no
incentives have no future
[Music]
so you can do two things
take it and gone and put this gun to his
head like it was at a stolen time or you
have to give him incentives because he
wants to improve the life of his family
and he can't
factory managers at Norilsk could see
the economy was not working because the
workers were not working
please that cell is Makara sure about
that new buddha you can't work properly
under socialism what a monster well sure
there is no incentive and sadly that's
the only thing that gets us going
yes that's our studies mommy
people come to work and just go through
the motions they dissolve rich papers to
the crosswords the state goes on paying
then the state gets poorer the people
could corrupt it then bankruptcy for a
company with annual sales of two and a
half million dollars for Tannen paid
just a hundred seventy million I felt a
great feeling of victory
several years before it was even
difficult to think about was struggling
with read directions the struggle was
won by asked by those who came who who
were younger more active and more
prepared for competition many years
later came feeling of great
responsibility because when you win you
become responsible for everything what
is going on but it came a little bit
later to many the loans-for-shares deal
was more than a scandal it was the theft
of the century but it was a price
Yeltsin was willing to pay to keep the
Communists out the task was not to
distribute the property between ten
personal friends there were no need for
that
the task was to give the property to
millions of people we can say that it
was artificially yes it was cheap
relatively cheap it was not transparent
yes but I think that it was difficult to
avoid it maybe it was the only way the
goals are justifying the means that's
how the Bolsheviks made the revolution
in Russia and that's why it is disaster
always when you are using the formula
that the goals are justifying the means
you are destroying the goals
in Yeltsin's Russia crony capitalism
thrived
for many reform came to mean corruption
inflation and inequality then in 1998
Russia defaulted on its debts in the
stock market crash the Yeltsin era ended
with his abrupt resignation on New
Year's Day 2000 by the start of the new
millennium
the decade of radical change was over a
world that not so long ago had looked to
socialism central planning and
protectionism now looked to the market
it's breathtaking what's happened in the
last 20 years or less this as though the
whole world has changed its mind
everywhere in India China Asia