Part 7 (1/2)

When the zeal for shock therapy in Russia was at its peak, its cheerleaders were absolutely convinced that only total destruction of every single inst.i.tution would create the conditions for a national rebirth-the dream of the blank slate that would recur in Baghdad. It is ”desirable,” wrote the Harvard historian Richard Pipes, ”for Russia to keep on disintegrating until nothing remains of its inst.i.tutional structures.”86 And the Columbia University economist Richard Ericson wrote in 1995, ”Any reform must be disruptive on a historically unprecedented scale. An entire world must be discarded, including all of its economic and most of its social and political inst.i.tutions, and concluding with the physical structure of production, capital, and technology.” And the Columbia University economist Richard Ericson wrote in 1995, ”Any reform must be disruptive on a historically unprecedented scale. An entire world must be discarded, including all of its economic and most of its social and political inst.i.tutions, and concluding with the physical structure of production, capital, and technology.”87 Another Iraq parallel: no matter how baldly Yeltsin defied anything resembling democracy, his rule was still characterized in the West as part of ”a transition to democracy,” a narrative that would change only when Putin began cracking down on the illegal activities of several of the oligarchs. Similarly, the Bush administration has always portrayed Iraq as on the road to freedom, even in the face of overwhelming evidence of rampant torture, out-of-control death squads and pervasive press censors.h.i.+p. Russia's economic program was always described as ”reform,” just as Iraq is perennially under ”reconstruction,” even after the U.S. contractors have mostly all fled, leaving the infrastructure in a shambles, as the destruction roars on. In Russia in the mid-nineties, anyone who dared question the wisdom of ”the reformers” was dismissed as nostalgic for Stalin, just as critics of Iraq's occupation were, for years, met with accusations that they thought life was better under Saddam Hussein.

When it was no longer possible to hide the failures of Russia's shock therapy program, the spin turned to Russia's ”culture of corruption,” as well as speculation that Russians ”aren't ready” for genuine democracy because of their long history of authoritarianism. Was.h.i.+ngton's think-tank economists hastily disavowed the Frankenstein economy they helped create in Russia, deriding it as ”mafia capitalism”-supposedly a phenomenon peculiar to the Russian character. ”Nothing good will ever come of Russia,” The Atlantic Monthly The Atlantic Monthly reported in 2001, quoting a Russian office worker. In the reported in 2001, quoting a Russian office worker. In the Los Angeles Times Los Angeles Times, the journalist and novelist Richard Lourie p.r.o.nounced that ”the Russians are such a calamitous nation that even when they undertake something sane and ba.n.a.l, like voting and making money, they make a total hash of it.”88 The economist Anders Aslund had claimed that the ”temptations of capitalism” alone would transform Russia, that the sheer power of greed would provide the momentum to rebuild the country. Asked a few years later what went wrong, he replied, ”Corruption, corruption and corruption,” as if corruption was something other than the unrestrained expression of the ”temptations of capitalism” that he had so enthusiastically praised. The economist Anders Aslund had claimed that the ”temptations of capitalism” alone would transform Russia, that the sheer power of greed would provide the momentum to rebuild the country. Asked a few years later what went wrong, he replied, ”Corruption, corruption and corruption,” as if corruption was something other than the unrestrained expression of the ”temptations of capitalism” that he had so enthusiastically praised.89 The entire charade would be replayed a decade later to explain away the billions of missing reconstruction dollars in Iraq, with the disfiguring legacy of Saddam and the pathologies of ”radical Islam” standing in for the legacy of Communism and czarism. In Iraq, U.S. rage at the apparent inability of Iraqis to accept their gift of gunpoint ”freedom” would also turn abusive - except that in Iraq the rage would not be found only in nasty editorials about ”ungrateful” Iraqis but would also be pounded out on the bodies of Iraqi civilians by U.S. and British soldiers.

The real problem with the blame-Russia narrative is that it pre-empts any serious examination of what the whole episode has to teach about the true face of the crusade for unfettered free markets, the most powerful political trend of the past three decades. The corruption of many of the oligarchs is still spoken of as an alien force that infected otherwise worthy free-market plans. But corruption wasn't an intruder to Russia's free-market reforms: quick and dirty deals were actively encouraged by Western powers at every stage as the fastest way to kick-start the economy. National salvation through the harnessing of greed was the closest thing Russia's Chicago Boys and their advisers had to a plan for what they were going to do after they finished destroying Russia's inst.i.tutions.

Nor were these catastrophic results unique to Russia; the entire thirty-year history of the Chicago School experiment has been one of ma.s.s corruption and corporatist collusion between security states and large corporations, from Chile's piranhas, to Argentina's crony privatizations, to Russia's oligarchs, to Enron's energy sh.e.l.l game, to Iraq's ”free fraud zone.” The point of shock therapy is to open up a window for enormous profits to be made very quickly-not despite the lawlessness but precisely because of it. ”Russia Has Become a Klondike for International Fund Speculators,” ran a headline in a Russian newspaper in 1997, while Forbes Forbes described Russia and Central Europe as ”the new frontier.” described Russia and Central Europe as ”the new frontier.”90 The colonial-era terms were entirely appropriate. The colonial-era terms were entirely appropriate.

The movement that Milton Friedman launched in the 1950s is best understood as an attempt by multinational capital to recapture the highly profitable, lawless frontier that Adam Smith, the intellectual forefather of today's neoliberals, so admired-but with a twist. Rather than journeying through Smith's ”savage and barbarous nations” where there was no Western law (no longer a practical option), this movement set out to systematically dismantle existing laws and regulations to re-create that earlier lawlessness. And where Smith's colonists earned their record profits by seizing what he described as ”waste lands” for ”but a trifle,” today's multinationals see government programs, public a.s.sets and everything that is not for sale as terrain to be conquered and seized-the post office, national parks, schools, social security, disaster relief and anything else that is publicly administered.91 Under Chicago School economics, the state acts as the colonial frontier, which corporate conquistadors pillage with the same ruthless determination and energy as their predecessors showed when they hauled home the gold and silver of the Andes. Where Smith saw fertile green fields turned into profitable farmlands on the pampas and the prairies, Wall Street saw ”green field opportunities” in Chile's phone system, Argentina's airline, Russia's oil fields, Bolivia's water system, the United States' public airwaves, Poland's factories-all built with public wealth, then sold for a trifle.92 Then there are the treasures created by enlisting the state to put a patent and a price tag on life-forms and natural resources never dreamed of as commodities-seeds, genes, carbon in the earth's atmosphere. By relentlessly searching for new profit frontiers in the public domain, Chicago School economists are like the mapmakers of the colonial era, identifying new waterways through the Amazon, marking off the location of a hidden cache of gold inside an Inca temple. Then there are the treasures created by enlisting the state to put a patent and a price tag on life-forms and natural resources never dreamed of as commodities-seeds, genes, carbon in the earth's atmosphere. By relentlessly searching for new profit frontiers in the public domain, Chicago School economists are like the mapmakers of the colonial era, identifying new waterways through the Amazon, marking off the location of a hidden cache of gold inside an Inca temple.

Corruption has been as much a fixture on these contemporary frontiers as it was during the colonial gold rushes. Since the most significant privatization deals are always signed amid the tumult of an economic or political crisis, clear laws and effective regulators are never in place-the atmosphere is chaotic, the prices are flexible and so are the politicians. What we have been living for three decades is frontier capitalism, with the frontier constantly s.h.i.+fting location from crisis to crisis, moving on as soon as the law catches up.

And so, far from acting as a cautionary tale, the rise of Russia's billionaire oligarchs proved precisely how profitable the strip mining of an industrialized state could be-and Wall Street wanted more. Immediately following the Soviet collapse, the U.S. Treasury and the IMF became much tougher in their demands for instant privatizations from other crisis-racked countries. The most dramatic case to date came in 1994, the year after Yeltsin's coup, when Mexico's economy suffered a major meltdown known as the Tequila Crisis: the terms of the U.S. bailout demanded rapid-fire privatizations, and Forbes Forbes announced that the process had minted twenty-three new billionaires. ”The lesson here is fairly obvious: to predict whence the next bursts of billionaires will issue, look for countries where markets are opening.” It also cracked Mexico open to unprecedented foreign owners.h.i.+p: in 1990, only one of Mexico's banks was foreign owned, but ”by 2000 twenty-four out of thirty were in foreign hands.” announced that the process had minted twenty-three new billionaires. ”The lesson here is fairly obvious: to predict whence the next bursts of billionaires will issue, look for countries where markets are opening.” It also cracked Mexico open to unprecedented foreign owners.h.i.+p: in 1990, only one of Mexico's banks was foreign owned, but ”by 2000 twenty-four out of thirty were in foreign hands.”93 Clearly the only lesson learned from Russia is that the faster and more lawless the transfer of wealth, the more profitable it will be. Clearly the only lesson learned from Russia is that the faster and more lawless the transfer of wealth, the more profitable it will be.

One person who understood that was Gonzalo Sanchez de Lozada (Goni), the businessman in whose living room the Bolivian shock therapy plan had been drafted in 1985. As president of the country in the mid-nineties, he sold off Bolivia's national oil company, as well as the national airline, railway, electricity and phone companies. Unlike what transpired in Russia, where the biggest prizes were awarded to locals, the winners of Bolivia's fire sale included Enron, Royal Dutch/Sh.e.l.l, Amoco Corp. and Citicorp-and the sales were direct; there was no need to partner with local firms.94 The Wall Street Journal The Wall Street Journal described the Wild West scene in La Paz in 1995: ”The Radisson Plaza Hotel is crammed with executives from major U.S. companies like AMR Corp.'s American Airlines, MCI Communications Corp., Exxon Corp. and Salomon Brothers Inc. They have been invited by the Bolivians to rewrite laws governing the sectors to be privatized and to bid on the companies on the block” -a tidy arrangement. ”The important thing is to make these changes irreversible and to get them done before the antibodies kick in,” said President Sanchez de Lozada, explaining his shock therapy approach. To make absolutely sure those ”antibodies” didn't kick in, Bolivia's government did something it had done before under similar circ.u.mstances: it imposed yet another prolonged ”state of siege” that banned political gatherings and authorized the arrest of all opponents of the process. described the Wild West scene in La Paz in 1995: ”The Radisson Plaza Hotel is crammed with executives from major U.S. companies like AMR Corp.'s American Airlines, MCI Communications Corp., Exxon Corp. and Salomon Brothers Inc. They have been invited by the Bolivians to rewrite laws governing the sectors to be privatized and to bid on the companies on the block” -a tidy arrangement. ”The important thing is to make these changes irreversible and to get them done before the antibodies kick in,” said President Sanchez de Lozada, explaining his shock therapy approach. To make absolutely sure those ”antibodies” didn't kick in, Bolivia's government did something it had done before under similar circ.u.mstances: it imposed yet another prolonged ”state of siege” that banned political gatherings and authorized the arrest of all opponents of the process.95 These were also the years of Argentina's notoriously corrupt privatization circus, hailed as ”A Bravo New World” in an investment report by Goldman Sachs. Carlos Menem, the Peronist president who came to power promising to be the voice of the working man, was in charge during those years, downsizing and then selling the oil fields, the phone system, the airline, the trains, the airport, the highways, the water system, the banks, the Buenos Aires zoo and, eventually, the post office and the national pension plan. As the country's wealth moved offsh.o.r.e, the lifestyles of Argentina's politicians grew increasingly lavish. Menem, once known for his leather jackets and working-cla.s.s sideburns, began wearing Italian suits and reportedly making trips to the plastic surgeon (”a bee sting” is how he explained his swollen features). Maria Julia Alsogaray, Menem's minister in charge of privatization, posed for the cover of a popular magazine wearing nothing but an artfully draped fur coat, while Menem began driving a bright red Ferrari Testarossa- a ”gift” from a grateful businessman.96 The countries that emulated Russia's privatizations also experienced milder versions of Yeltsin's coups-in-reverse-governments that came to power peacefully and, through elections, found themselves resorting to increasing levels of brutality to hold on to power and defend their reforms. In Argentina, the rule of unfettered neoliberalism ended on December 19, 2001, when President Fernando de la Rua and his finance minister, Domingo Cavallo, tried to impose further IMF-prescribed austerity measures. The population revolted, and de la Rua sent in federal police on orders to disperse the crowds by whatever means were required. De la Rua was forced to flee in a helicopter, but not before twenty-one protesters were killed by police and 1,350 people were injured.97 Goni's last months and days in office were even bloodier. His privatizations sparked a series of ”wars” in Bolivia: first the water war, against Bechtel's water contract that sent prices soaring 300 percent; then a ”tax war” against an IMF-prescribed plan to make up a budget shortfall by taxing the working poor; then the ”gas wars” against his plans to export gas to the U.S. In the end, Goni was also forced to flee the presidential palace to live in exile in the U.S., but, as in de la Rua's case, not before many lives were lost. After Goni ordered the military to put down street demonstrations, soldiers killed close to seventy people -many of them bystanders-and injured four hundred others. As of early 2007, Goni was wanted by Bolivia's Supreme Court on charges relating to the ma.s.sacre. Goni's last months and days in office were even bloodier. His privatizations sparked a series of ”wars” in Bolivia: first the water war, against Bechtel's water contract that sent prices soaring 300 percent; then a ”tax war” against an IMF-prescribed plan to make up a budget shortfall by taxing the working poor; then the ”gas wars” against his plans to export gas to the U.S. In the end, Goni was also forced to flee the presidential palace to live in exile in the U.S., but, as in de la Rua's case, not before many lives were lost. After Goni ordered the military to put down street demonstrations, soldiers killed close to seventy people -many of them bystanders-and injured four hundred others. As of early 2007, Goni was wanted by Bolivia's Supreme Court on charges relating to the ma.s.sacre.98 The regimes that imposed ma.s.s privatization on Argentina and Bolivia were both held up in Was.h.i.+ngton as examples of how shock therapy could be imposed peacefully and democratically, without coups or repression. Although it's true that they did not begin in a hail of gunfire, it is surely significant that both ended in one.

In much of the Southern Hemisphere, neoliberalism is frequently spoken of as ”the second colonial pillage”: in the first pillage, the riches were seized from the land, and in the second they were stripped from the state. After every one of these profit frenzies come the promises: next time, there will be firm laws in place before a country's a.s.sets are sold off, and the entire process will be watched over by eagle-eyed regulators and investigators with unimpeachable ethics. Next time there will be ”inst.i.tution building” before privatizations (to use the post-Russia parlance). But calling for law and order after the profits have all been moved offsh.o.r.e is really just a way of legalizing the theft ex post facto, much as the European colonizers locked in their land grabs with treaties. Lawlessness on the frontier, as Adam Smith understood, is not the problem but the point, as much a part of the game as the contrite hand-wringing and the pledges to do better next time.

CHAPTER 12.

THE CAPITALIST ID.

RUSSIA AND THE NEW ERA OF THE BOOR MARKET.

You have made yourself the trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out. -John Maynard Keynes in a letter to President Franklin D. Roosevelt, 1933 -John Maynard Keynes in a letter to President Franklin D. Roosevelt, 19331 On the day I went to visit Jeffrey Sachs in October 2006, New York City was under a damp blanket of gray drizzle punctuated, every five paces or so, by a vibrant burst of red. It was the week of the grand launch of Bono's (Product) Red brand, and the city was getting the full blitz. Red iPods and Armani sungla.s.ses loomed from billboards overhead, every bus shelter featured Steven Spielberg or Penelope Cruz in a different red garment, every Gap outlet in the city had given itself over to the launch, and the Apple store on Fifth Avenue was emitting a rosy glow. ”Can a tank top change the world?” asked one ad. Yes it can, we were a.s.sured, because a portion of the profits was going to the Global Fund to Fight AIDS, TB and malaria. ”Shop till it stops!” Bono had p.r.o.nounced, in the midst of a televised shopping spree with Oprah a couple of days earlier.2 I had a hunch that most of the journalists wanting to talk to Sachs that week would be looking for the superstar economist's view on this fas.h.i.+onable new way to raise aid money. After all, Bono refers to Sachs as ”my professor,” and a photo of the two men greeted me as I entered Sachs's office at Columbia University (he left Harvard in 2002). In the midst of all this glamorous charity, I felt like a bit of a spoiler, because I wanted to talk about the professor's least favorite topic of all, one that has prompted him to threaten to hang up on reporters mid-interview. I wanted to talk about Russia and what went wrong there.

It was in Russia, after the first year of shock therapy, that Sachs began his own transition, from global shock doctor to one of the world's most outspoken campaigners for increasing aid to impoverished countries. It is a transition that, in the years since, has put him in conflict with many former colleagues and collaborators in orthodox economic circles. As far as Sachs is concerned, he isn't the one who changed-he was always committed to helping countries develop market-based economies bolstered by generous aid and debt forgiveness. For years he had found it possible to achieve these goals by working in partners.h.i.+p with the IMF and the U.S. Treasury. But by the time he was on the ground in Russia, the tenor of discussion had changed and he came up against a level of official indifference that shocked him and pushed him into a more confrontational stance with Was.h.i.+ngton's economic establishment.

Seen with hindsight, there is no doubt that Russia marked the beginning of a new chapter in the evolution of the Chicago School crusade. In earlier shock therapy laboratories of the seventies and eighties, there had been some desire at the U.S. Treasury and the IMF to make the experiments at least superficially successful-precisely because they were experiments, meant to serve as models for other countries to follow. The Latin American dictators.h.i.+ps of the seventies were rewarded for their attacks on trade unions and their open borders with steady loans, which were granted despite such departures from Chicago School orthodoxy as Chile's continued state control over the world's largest copper mines and the Argentine junta's slow action on privatizations. Bolivia, as the first democracy to adopt shock therapy in the eighties, was granted aid and had a portion of its debt erased-well before Goni moved ahead with privatization in the nineties. In Poland, the first Eastern Bloc country to impose shock therapy, Sachs had no trouble securing substantial loans, and, once again, major privatizations were slowed and staggered when the original plan encountered strong opposition.

Russia was different. ”Too much shock, not enough therapy” was the widespread verdict. Western powers were totally unyielding in their demand for the most painful ”reforms,” at the same time as they were a.s.siduously stingy in the amount of aid they would offer in return. Even Pinochet had cus.h.i.+oned the pain of shock therapy with food programs for the poorest children; Was.h.i.+ngton lenders saw no reason to help Yeltsin do the same, pus.h.i.+ng the country instead into its Hobbesian nightmare.

Having a substantive discussion about Russia with Sachs isn't easy. I was hoping to take the conversation beyond his initial defensiveness (”I was right and they were completely wrong,” he told me. Then, ”Ask Larry Summers, don't ask me; ask Bob Rubin, ask Clinton, ask Cheney how happy they were with the way Russia went”). I also wanted to get beyond the genuine despondency (”I was trying to do something at the time, which proved to be completely useless”). What I was aiming to understand better was why he was so unsuccessful in Russia, why Jeffrey Sachs's famous luck ran out at that particular juncture.

Sachs now says that he knew something was different as soon as he arrived in Moscow. ”I had a sense of foreboding from the first moment... I was furious from the first moment.” Russia was facing ”a first-cla.s.s macroeconomic crisis, one of the most intense and unstable I had ever seen in my life,” he said. And as far as he was concerned, the way out was clear: the shock therapy measures he had prescribed for Poland ”to get basic market forces working quickly-plus a heck of a lot of aid. I was thinking of $30 billion a year, roughly divided, $15 billion for Russia and $15 billion for the republics, in order to be able to pull off a peaceful and democratic transition.”

Sachs, it must be said, has a notoriously selective memory when it comes to the draconian policies he pushed in both Poland and Russia. In our interview, he repeatedly glossed over his own calls for swift privatization and large cutbacks (in short, shock therapy, a phrase he now disavows, claiming he was referring only to narrow pricing policies, not wholesale country makeovers). The way he remembers his role, shock therapy played a minor part, and he was almost exclusively focused on fund-raising; his plan for Poland, he says, was a ”stabilization fund, debt cancellation, short-term financial help, integration with the Western European economy. . . . When I was asked by Yeltsin's team to help them, I proposed basically the same thing.”38 There is no debate about the key fact in Sachs's account: securing a major aid infusion was a central pillar of his plan for Russia -that was Yeltsin's incentive for submitting to the entire program. Sachs based this vision, he says, on the Marshall Plan, the $12.6 billion ($130 billion in todays dollars) that the U.S. allotted for Europe to reconstruct its infrastructure and industry after the Second World War-a scheme widely regarded as Was.h.i.+ngton's most successful diplomatic initiative.3 Sachs says the Marshall Plan showed that ”when a country is in disarray, you can't just expect it to get back up on its feet in a coherent way by itself. So, for me the interesting thing about the Marshall Plan ... is how a modest amount of monetary infusion created a base for [Europe's] economic recovery to take hold.” At the start, he had been convinced that there was a similar political will in Was.h.i.+ngton to transform Russia into a successful capitalist economy, just as there had been a genuine commitment to West Germany and j.a.pan after the Second World War. Sachs says the Marshall Plan showed that ”when a country is in disarray, you can't just expect it to get back up on its feet in a coherent way by itself. So, for me the interesting thing about the Marshall Plan ... is how a modest amount of monetary infusion created a base for [Europe's] economic recovery to take hold.” At the start, he had been convinced that there was a similar political will in Was.h.i.+ngton to transform Russia into a successful capitalist economy, just as there had been a genuine commitment to West Germany and j.a.pan after the Second World War.

Sachs was confident that he could shake a new Marshall Plan out of the U.S. Treasury and the IMF, and not without reason. ”Probably the most important economist in the world” is how The New York Times The New York Times described him in this period. described him in this period.4 When he was an adviser to Poland's government, he recalled that he ”raised $1 billion in one day in the White House.” But, Sachs told me, ”when I suggested the same thing for Russia, there was absolutely no interest at all. None. And the IMF just stared me down like I was crazy.” When he was an adviser to Poland's government, he recalled that he ”raised $1 billion in one day in the White House.” But, Sachs told me, ”when I suggested the same thing for Russia, there was absolutely no interest at all. None. And the IMF just stared me down like I was crazy.”

Although Yeltsin and his Chicago Boys had plenty of admirers in Was.h.i.+ngton, no one was willing to come up with the kind of aid they were talking about. That meant Sachs had urged wrenching policies on Russia, and he couldn't keep up his end of the bargain. It was in this period that he came close to self-criticism: ”My greatest personal mistake,” Sachs said in the midst of the Russia debacle, ”was to say to President Boris Yeltsin, 'Don't worry; help is on the way.' I believed deeply that the a.s.sistance was too important, and too crucial to the West, for it to be messed up as significantly and fundamentally as it has been.”5 But the problem wasn't only that the IMF and the Treasury hadn't listened to Sachs, it was that Sachs had pushed hard for shock therapy before he had any guarantee that they would-a gamble for which millions paid dearly. But the problem wasn't only that the IMF and the Treasury hadn't listened to Sachs, it was that Sachs had pushed hard for shock therapy before he had any guarantee that they would-a gamble for which millions paid dearly.

When I revisited the question with Sachs, he reiterated that his real failing was in misreading Was.h.i.+ngton's political mood. He recalled a discussion with Lawrence Eagleburger, U.S. secretary of state under George H. W. Bush. Sachs made his case: if Russia was allowed to descend further into economic chaos, it could unleash forces no one could control -ma.s.s famine, resurgent nationalism, even fascism, surely unwise in a country where virtually the only product held in surplus was nuclear arms. ”Your a.n.a.lysis may be just right, but it's not going to happen,” Eagleburger replied. Then he asked Sachs, ”Do you know what year this is?”

It was 1992, the year of the U.S. election in which Bill Clinton was about to defeat Bush Sr. The core of Clinton's campaign was that Bush had neglected economic hards.h.i.+p at home to pursue glory abroad (”It's the economy, stupid”). Sachs believes that Russia was a casualty of that domestic battle. And, he says, he now sees that there was something else at work: many of Was.h.i.+ngton's power brokers were still fighting the Cold War. They saw Russia's economic collapse as a geopolitical victory, the decisive one that ensured U.S. supremacy. ”I had none of that mind-set,” Sachs told me, sounding, as he often does, like a Boy Scout who has stumbled into an episode of The Sopranos. The Sopranos. ”For me it was just, 'Great, this is the final end of this abominable regime. Now, let's really help [the Russians]. Let's throw everything into it. . . .' I'm sure that in retrospect, in the minds of the policy planners, that was viewed as crazy.” ”For me it was just, 'Great, this is the final end of this abominable regime. Now, let's really help [the Russians]. Let's throw everything into it. . . .' I'm sure that in retrospect, in the minds of the policy planners, that was viewed as crazy.”

Despite his failure, Sachs does not feel that the policy toward Russia in this period was driven by free-market ideology. It was mostly, he said, characterized by ”sheer laziness.” He would have welcomed a heated debate about whether to offer aid to Russia or leave it all to the market. Instead, there was a collective shrug. He said he was amazed by the absence of serious research and debate informing momentous decisions. ”To me, it was just the lack of effort that was the dominant thing. Let's at least spend two days and debate this-well, we never even did that! I never saw the hard work of 'Roll up your sleeves, let's get down and solve these problems, let's figure out what's really going on.'”

When Sachs talks pa.s.sionately about ”hard work,” he is harking back to the days of the New Deal, the Great Society and the Marshall Plan, when young men from Ivy League schools sat around commanding tables in their s.h.i.+rt sleeves, surrounded by empty coffee cups and piles of policy papers, having heated debates about the interest rate and the price of wheat. That is how policy makers behaved in the heyday of Keynesianism, and that is the kind of ”seriousness” that Russia's catastrophe clearly deserved.

But attributing the abandonment of Russia to a bout of collective laziness in Was.h.i.+ngton offers little by way of explanation. Perhaps a better way to understand the episode is through the lens favored by free-market economists: compet.i.tion in the market. When the Cold War was in full swing and the Soviet Union was intact, the people of the world could choose (at least theoretically) which ideology they wanted to consume; there were the two poles, and there was much in between. That meant capitalism had to win customers; it needed to offer incentives; it needed a good product. Keynesianism was always an expression of that need for capitalism to compete. President Roosevelt brought in the New Deal not only to address the desperation of the Great Depression but to undercut a powerful movement of U.S. citizens who, having been dealt a savage blow by the unregulated free market, were demanding a different economic model. Some wanted a radically different one: in the 1932 presidential elections, one million Americans voted for Socialist or Communist candidates. Growing numbers of Americans were also paying close attention to Huey Long, the populist senator from Louisiana who believed that all Americans should receive a guaranteed annual income of $2,500. Explaining why he had added more social welfare benefits to the New Deal in 1935, FDR said he wanted to ”steal Longs thunder.”6 It was in this context that American industrialists grudgingly accepted FDR's New Deal. The edges of the market needed to be softened with public sector jobs and by making sure no one went hungry-the very future of capitalism was at stake. During the Cold War, no country in the free world was immune to this pressure. In fact, the achievements of mid-century capitalism, or what Sachs calls ”normal” capitalism-workers' protections, pensions, public health care and state support for the poorest citizens in North America-all grew out of the same pragmatic need to make major concessions in the face of a powerful left.

The Marshall Plan was the ultimate weapon deployed on this economic front. After the war, the German economy was in crisis, threatening to bring down the rest of Western Europe. Meanwhile, so many Germans were drawn to socialism that the U.S. government opted to split Germany into two parts rather than risk losing it all, either to collapse or to the left. In West Germany, the U.S. government used the Marshall Plan to build a capitalist system that was not meant to create fast and easy new markets for Ford and Sears but, rather, to be so successful on its own terms that Europe's market economy would thrive and socialism would be drained of its appeal.

By 1949, that meant tolerating from the West German government all kinds of policies that were positively uncapitalist: direct job creation by the state, huge investment in the public sector, subsidies for German firms and strong labour unions. In a move that would have been unthinkable in Russia in the 1990s or Iraq under U.S. occupation, the U.S. government infuriated its own corporate sector by imposing a moratorium on foreign investment so that war-battered German companies would not be forced to compete before they had recovered. ”The feeling was that letting foreign companies come in at that point would have been like piracy/' I was told by Carolyn Eisenberg, author of an acclaimed history of the Marshall Plan.7 ”The main difference between now and then is that the U.S. government did not see Germany as a cash cow. They didn't want to antagonize people. The belief was that if you come in and start pillaging the place, you interfere with the recovery of Europe as a whole.” ”The main difference between now and then is that the U.S. government did not see Germany as a cash cow. They didn't want to antagonize people. The belief was that if you come in and start pillaging the place, you interfere with the recovery of Europe as a whole.”