|Chapter 1: Prologue [3:49]
NARRATOR: The terrible events of September 11 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
BILL CLINTON, U.S. President, 1993-2001: You can't get away from the fact that
globalization makes us interdependent, so it's not an option to shed it. So is it going to
be, on balance, positive or negative?
NARRATOR: This is the story of how the new global economy was born.
For much of the 20th century, people blamed free-market capitalism 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.
JEFFREY SACHS, Professor, Harvard University: Part of what 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.
NARRATOR: The world changed its mind. In the Soviet Union and its satellites, in the
emerging markets of Asia, and in the state-dominated economies of Latin America,
governments everywhere moved away from state control and towards free markets.
DANIEL YERGIN, Author, Commanding Heights: This free-market revolution has really
led to the new global economy. It excites some and terrifies others.
NARRATOR: That revolution was wrenching. Tonight on Commanding Heights: The Agony
NARRATOR: Much of the world once modeled itself on the Soviet
Union. Here, Lenin's revolution industrialized a backward country within a single
generation. The Soviet system, ruthless and centrally planned, gave birth to vast
industrial complexes like Norilsk.
DANIEL YERGIN: Norilsk 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. So much of its history had been tied up with the
fact that it was a prison camp. Even in the early 1950s, 100,000 political prisoners were
working in its mines and factories.
NARRATOR: Millions rode the slow train to the prison camps. Vassily Romashkin's crime
against the state was to check out the wrong book from the public library.
VASSILY ROMASHKIN, Former Political Prisoner: They sent me over to Norilsk after the
trial. The trial lasted about 10 minutes. My wife and I said our good-byes.
NARRATOR: The prisoners' slave labor became a crucial component of the Soviet economy.
VASSILY ROMASHKIN: 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
NARRATOR: The Soviet system of central planning meant that the Kremlin controlled every
aspect of the economy. The aim was to make the Soviet Union strong and self-sufficient.
The Soviet Union became an industrial giant, a military superpower, and a threat to the
GEORGE SHULTZ, U.S. Secretary of State, 1982-1989: Russia looked very formidable. The
essence of Soviet power was its ballistic missiles. They could wipe out any country in the
world in 30 minutes' time. So that's a lot of power.
MARGARET THATCHER, British Prime Minister, 1979-1990: Communism was gaining the world
over, gaining by its main methods, military threat from military might.
CHARLES POWELL, British Foreign Affairs Advisor, 1983-1991: We all thought the Soviet
Union was still a vast powerful economy, a huge military power, a threat to world peace,
determined to extend its influence around the world.
NARRATOR: Soviet influence was everywhere in Eastern Europe, in Africa, 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.
But the truth about the Soviet economy lay concealed behind the "Iron Curtain."
Onscreen title: The Iron Curtain
NARRATOR: Minefields, barbed wire, searchlights, and lookout towers sealed the Soviet bloc
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
News reached London that its top spy was in mortal danger.
Charles Powell was foreign policy advisor to Prime Minister Margaret Thatcher.
CHARLES POWELL: The news of the intention to spring him came to me in Downing Street. I
couldn't tell anyone else because no one else knew about it.
NARRATOR: It was so sensitive that Powell needed the prime minister's personal approval to
activate an escape plan.
CHARLES POWELL: Oleg Gordievsky was perhaps the most valuable agent, because he understood
the Soviet system from inside.
NARRATOR: In Moscow, the net was closing in on Oleg Gordievsky.
OLEG GORDIEVSKY, KGB Defector: At that time I decided to use my secret longstanding plan
of escape. I sent a signal to the British intelligence.
NARRATOR: Gordievsky evaded his KGB watchers and made his way to a forest near the Finnish
OLEG GORDIEVSKY: In the morning, I started to move toward the site in the woods, and there
I waited. I waited for the arrival of car, driven by two British people who picked me up,
put me in the boat, and drove to the border. It was a very small car, a very small boat.
On the border, we started to stop. One stop. Second stop. Third stop.
NARRATOR: They were approaching the moment of maximum danger.
OLEG GORDIEVSKY: The KGB and Soviet customs checks of the cars. I heard the voices. I
heard even the KGB dogs barking. And to my great luck, it went without any accident.
NARRATOR: But one of the British agents, a woman, threw the guard dogs off the scent by
feeding them potato chips.
Three days later, Gordievsky was in London and the debriefings began.
OLEG GORDIEVSKY: When I was a British agent inside the KGB, the British intelligence
service didn't have time to ask me about economy, because they were interested about
strategic problems. The arms-control questions were so overwhelming, the West neglected
the important foundation of the argument: the economy.
NARRATOR: Gordievsky told his British spymasters that the Soviet Union was under great
pressure, devoting more than a third of its entire economy to military spending.
OLEG GORDIEVSKY: And the analyst said no, I can't put such a huge figure down because
nobody would believe it. Later, economists realized that the Soviet Union had been
spending at least 50 percent on the military.
CHARLES POWELL: Gordievsky's information was shared with President Reagan and the
Americans, and he was able to play, behind the scenes, a role of extraordinary influence.
NARRATOR: Thanks to Gordievsky's intelligence, Western leaders realized that Soviet
military might rested on a crumbling economy.
OLEG GORDIEVSKY: 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 the extra money made it possible to claim that
they were successful. And they were deceiving the world.
NARRATOR: Soviet satellites circled the world, and nuclear submarines prowled the oceans.
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 Europe's.
GRIGORY YAVLINSKY, Economic Reformer: Soviet economy was 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.
NARRATOR: An independent-minded young economist, Grigory Yavlinsky, wrote a report on why
workers in state mines were so unproductive.
GRIGORY YAVLINSKY: The people don't want to work. The people have no incentives. The
economy inside which the people have no incentives have no future. So you can do two
things: Take a gun and put this gun to his head like it was at the Stalin's time, or you
have to give him incentives, because he wants to improve the life of his family, and he
NARRATOR: Factory managers at Norilsk could see the economy was not working, because the
workers were not working.
VALERY KOVALCHUK, Former Norilsk Factory Manager: You can't work properly under socialism.
There is no incentive. And sadly, that's the only thing that gets us going. People come to
work and just go through the motions. They doze off, read papers, do the crosswords. The
state goes on paying them, the state gets poorer, the people get corrupted, then
bankruptcy. And that's what happened -- the collapse of a great empire.
Onscreen title: New Delhi, India
NARRATOR: 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.
YASHWANT SINHA, Indian Finance Minister: The government of India went into business in a
big way, and they decided to control whatever was there in the private sector also as
firmly and fiercely as they could.
NARRATOR: 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.
NARAYANA MURTHY, Chairman, Infosys Technologies: It used to take us about 12 to 24 months
and about 50 visits to Delhi to get a license to import a computer worth $1,500.
NARRATOR: Since it was impossible to work with the system, people learned to work around
P. CHIDAMBARAM, Indian Finance Minister, 1996-1998: Every license, every permit, was
procured by corrupt means.
INTERVIEWER: A bribe?
P. CHIDAMBARAM: Well, "bribe" is the simpler word, I suppose.
NARRATOR: Self-sufficiency was India's ideal. To protect its own manufacturing industry,
India shut out foreign imports.
P. CHIDAMBARAM: 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
JAIRAM RAMESH, Indian Government Advisor, 1991-1998: 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.
NARRATOR: Take India's beloved Ambassador car. It is made by Hindustan Motors, which
started manufacturing in the same year as Japan's Toyota. Fifty years later, Toyota makes
five million cars a year. Hindustan sells 18,000 Ambassadors, and still to the same
MANMOHAN SINGH, Finance Minister, 1991-1996: If you have a controlled economy, cut off
from the rest of the world by infinite protection, nobody has any incentive to, in a
way... nobody has any incentive to increase productivity, to bring new ideas.
NARRATOR: Overprotected, over-administered, overplanned, the Permit Raj was quite
literally a brake on the Indian economy.
Onscreen title: Latin America
NARRATOR: In Latin America, radically different leaders shared India's suspicion of the
world economy. In the 1940s and '50s, it was Juan Peron and his wife, Evita. 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.
DANIEL YERGIN: The dependency theory said that if you want to get high economic growth in
your country, what you need to do is put up barriers, tariffs that restrict the flow of
import 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 flows of technology,
flows of investment, from flows of know-how, and instead of getting ahead you were falling
MOISES NAIM, Editor, Foreign Policy Magazine: Because they are not threatened by
competition, you create very lazy, noncompetitive companies that produce not very good
goods at higher prices. It may create jobs here and there, but in the long term it may
create even more poverty.
Onscreen title: Santiago, Chile
NARRATOR: By the early 1970s, Latin American economies were in trouble. Chile elected the
Marxist president Salvador Allende. Allende's 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.
RICARDO LAGOS, President, Chile: We have a tremendous inflation. Chilean society became
extremely polarized. It's true it was polarized before Allende, but during Allende's
period the society was extremely polarized.
NARRATOR: It all ended in a military coup. As air force jets straffed the presidential
palace, Allende was trapped inside. This was the last picture taken of him alive.
Allende supporters, union leaders, and left-wing students were rounded up in the national
football stadium. Hundreds were never seen again.
Chile's military junta was led by Gen. Augusto Pinochet. Many middle-class Chileans saw
him as a savior.
JAVIER VIAL, President, Association of Banks, 1973: I think that Pinochet's plan was
basically the plan to manage an army. He didn't have an economic policy to manage a
ARNOLD HARBERGER, Professor Emeritus, University of Chicago: After a year, year and half
of military government, you still had 20 percent per-month built-in inflation that
wouldn't go away until something structurally changed.
NARRATOR: One of those who plotted the coup went to talk to Pinochet face to face.
ROBERTO KELLY, Junta Economic Planner: I told him, "You've been called Chile's
savior, but you will go down in history as the man that buried Chile." He was very
shocked by this, and he said, "Okay, you've got 48 hours to come up with a national
plan to fix the economy."
ARNOLD HARBERGER: The only people who had a serious blueprint of how to get out of this
were this group called the Chicago Boys.
NARRATOR: 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.
MILTON FRIEDMAN, Professor Emeritus, University of Chicago: What characterized the Chicago
School was a strong belief in minimal government and an emphasis on free market as a way
to control the economy.
NARRATOR: Professors like Arnold Harberger and Milton Friedman taught their students to
distrust 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.
ARNOLD HARBERGER: This small group stayed together through the Allende years. And they
used to meet I think every Tuesday for lunch. And they would keep a kind of 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.
SERGIO DE CASTRO, Finance Minister, Chile, 1974-1982: Unfortunately, due to the
idiosyncrasies of the military mind, the generals preferred a controlled economy; that is,
an economy that would obey orders.
NARRATOR: Javier Vial, an influential businessman sympathetic to the junta, was trying to
push the military in the direction of the free market.
JAVIER VIAL: So I called Milton Friedman and invited him to come to Chile.
NARRATOR: So Milton Friedman, the most famous free-market economist in the world, came to
lecture in Chile.
MILTON FRIEDMAN: I went down to Chile and spent five days giving a series of lectures on
the Chilean problem, particularly the problem of inflation and how they should proceed to
do something about it.
NARRATOR: Friedman's first talk was at the Catholic University. His theme: the inescapable
link between free markets and freedom.
MILTON FRIEDMAN: The emphasis of that talk was that free markets would undermine political
centralization and political control.
ARNOLD HARBERGER: He said that that you cannot have a repressive government for long
within a genuinely free economic system.
NARRATOR: But Friedman was also persuaded to visit the grim conference center from which
Pinochet ruled Chile. Friedman told Pinochet that he needed to take decisive and immediate
action to defeat inflation.
JAVIER VIAL: Friedman says: "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."
ARNOLD HARBERGER: 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 began and major reforms were made.
NARRATOR: In Santiago, the junta called on the Chicago Boys to rescue the economy. Five
hundred state-owned businesses were privatized. Government budgets were cut. Import
tariffs were swept away. The markets were given free rein.
SERGIO DE CASTRO: The basic thrust was to increase exports and abolish artificial price
MILTON FRIEDMAN: Here was the first case in which you had a movement toward communism
which was replaced by a movement toward free markets.
NARRATOR: 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.
ALEJANDRO FOXLEY, Finance Minister, Chile, 1990-1994: They were starting a very big
process of transformation of the economy without any regard of what happened to people.
And we ended up at one point in time with 30 percent unemployment rate.
NARRATOR: According to the Chicago Boys, the gain was worth the pain. Chile became the
fastest growing economy in Latin America.
ALEJANDRO FOXLEY: They were able to start a process of deregulating the markets, opening
up the economy, so that's their contribution. They were able to anticipate a global trend,
and Chile has benefited from that.
INTERVIEWER: But at a price?
ALEJANDRO FOXLEY: At a very high price, believe me. At a very high human price.
MILTON FRIEDMAN: The Chilean economy did very well, but more important, in the end, the
Chilean military junta was replaced by a democratic society. Free markets did work their
way in bringing about a free society.
NARRATOR: This is the monument to the 2,400 who died or disappeared during the
dictatorship. The brutality of Pinochet's regime left little enthusiasm for change in the
rest of Latin America.
CLIVE CROOK, Deputy Editor, The Economist: 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
MILTON FRIEDMAN: The intellectual elite, as it were, were on the side of Allende, not on
the side of Pinochet. They regarded me as a traitor for having been willing to talk in
ARNOLD HARBERGER: 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.
NARRATOR: The protests reached their climax when Friedman was awarded the Nobel Prize in
MILTON FRIEDMAN: At 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
CLIVE CROOK: 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 than they otherwise would
Onscreen title: The Kremlin, Moscow
NARRATOR: 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
DANIEL YERGIN: By the 1970s and '80s, 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 kitchens; they talked about it in small groups. But it was
not something that could be talked about in the public.
NARRATOR: In Leningrad, the cradle of Lenin's revolution, an economics student was asking
if the solution lay not in Marxism but in markets.
ANATOLY CHUBAIS, Economic Reformer: I'm interested in what has happened in the economy. I
start to feel that there is 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.
NARRATOR: Chubais helped to organize seminars far from the prying eyes of the secret
police. One of his co-conspirators was a young economist from Moscow.
YEGOR GAIDAR, Economic Reformer: We were all in our 30s, researchers or teachers who
specialized in the Soviet economy. We could see how it worked and were well aware of its
weak points. I read books by Friedman and Hayek with great interest. They were our
ANATOLY CHUBAIS, First Deputy Prime Minister, 1994-1996: On that stage, definitely we do
understand that this thing quite risky.
YEGOR GAIDAR: Some of our sessions took place behind closed doors; we didn't trust
everyone at the seminar, so we kept some people out. Our discussions were not
revolutionary, but they were far beyond the limit of what was politically permissible.
NARRATOR: After a day arguing the pros and cons of a market economy, they would sit around
the campfire and tell jokes.
ANATOLY CHUBAIS: There was the idea that Gaidar will become prime minister maybe, which
sounds at that time absolutely crazy, and everybody laughing and another guy said that
yeah, he will be prime minister or he will be prisoner.
NARRATOR: But by 1985, it was not just economics students who were asking what was wrong.
When Mikhail Gorbachev became leader of the Soviet Union, he was appalled by the economic
MIKHAIL GORBACHEV, General Secretary, Communist Party, 1985-1991: There was a government
commission to examine the problem of women's pantyhose. Imagine a country that flies into
space, launches Sputniks, creates such a defense system, and it can't resolve the problem
of women's pantyhose. There's no toothpaste, no soap powder, not the basic necessities of
life. It was preposterous and embarrassing to work in such a government.
DANIEL YERGIN: 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
NARRATOR: Gorbachev's attempt to restructure the economy was called
MIKHAIL GORBACHEV: 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.
DANIEL YERGIN: He started to allow a certain amount of private enterprise, but it was
really a very uneven process. He ended up removing many of the tools of control of central
planning, but didn't really replace them with anything else.
NARRATOR: Gorbachev faced mounting pressure from the West. The U.S. president believed in
the economic philosophy of Milton Friedman and Chicago.
Ronald Reagan was not alone. He had a political soul mate 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.
RONALD REAGAN, U.S. President, 1981-1989: What I am 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.
MARGARET THATCHER: Up to that time, the whole doctrine had been one of "Contain
communism." That wasn't enough for Ronald Reagan and me, 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.
NARRATOR: 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.
OLEG GORDIEVSKY: Speaking to Gorbechev, she said: "Mikhail, you see how your economy
is organized -- centralized, entirely led by the Kremlin. Look at me in Britain and the
West. We have market economy, and it is running itself. I don't have to tell different
industries what to do. I don't deal with it at all. 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."
NARRATOR: In 1987 President Reagan carried this war of words to the most symbolic section
of the Iron Curtain: the Berlin Wall.
RONALD REAGAN: 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.
Onscreen title: Warsaw, Poland
NARRATOR: Margaret Thatcher carried the free-market message to Poland in 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 Lech Walesa.
LECH WALESA, President, Poland, 1990-1995: The country was so much in debt, with the West
refusing to lend us any more, that the whole system was failing. It was more and more
inefficient, and everybody, even the Communists, knew it.
NARRATOR: Lech Walesa climbed the shipyard gate to announce a momentous victory. The
workers had forced the government to recognize Solidarity, the free labor union. "I
declare the creation of a free union of workers. We now have the right to strike."
FATHER HENRY JANKOWSKI, St. Brygida Church, Gdansk: 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.
NARRATOR: Ten million Poles joined Solidarity. Under Walesa's 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. Walesa was placed under house arrest.
When Thatcher visited Poland in 1988 she demanded that the Communist government allow her
to meet Lech Walesa.
LECH WALESA: 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.
CHARLES POWELL: She came into the city of Gdansk onboard a small ship, and as she went
past the shipyards, all the cranes on the dockside was lined with shipyard workers, all
cheering and waving, and one began to sense here was an extraordinary experience in the
FATHER HENRY JANKOWSKI: The shipyard workers were not only sitting on the gate, but they
were also on the roofs surrounding the shipyard. She's a tough lady; she conquered the
hearts of the people of Gdansk.
NARRATOR: Solidarity workers escorted Mrs. Thatcher to a church.
CHARLES POWELL: Great crowds sang the Solidarity anthem, a haunting anthem.
FATHER HENRY JANKOWSKI: I could see she was very emotional about this visit. Her eyes
registered everything that went on around her.
CHARLES POWELL: It's one of the very few times that I saw tears in Mrs. Thatcher's eyes.
She was so moved by this expression of longing for liberty.
NARRATOR: At the house of Walesa's 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.
MARGARET THATCHER: If you have a free society under a rule of law, it produces both
dignity of the individual and prosperity.
CHARLES POWELL: Although it sounds very bossy and interfering, I think they were genuinely
grateful. "You, Solidarity," she said, "you must have your own ideas and
plans worked out. It's no good just being popular."
MARGARET THATCHER: How do you see the process from where you are now to where you want to
be? Because whatever you want to do, it's not only what you want to do, but how the
practical way you see it coming about, if you were to write down the 10 steps, from where
you are now to where you want to be.
CHARLES POWELL: And at one point, she said to Walesa, "But how do you get your
thinking over to the Polish government?" And he laughed and pointed to the ceiling
and said, "There's no trouble; they've got this meeting bugged."
FATHER HENRY JANKOWSKI: This meeting with Mrs. Thatcher made these future politicians
recognize the opportunities within their grasp.
MARGARET THATCHER: Thank you very much.
LECH WALESA: Without this meeting, there would not have been no victory, that's for sure.
There would have been delay, greater difficulties, or even our destruction.
NARRATOR: Thatcher's free-market message seemed to offer an escape from a Polish economy
that was debt-ridden and riddled with shortages.
DANIEL YERGIN: 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
Onscreen title: La Paz, Bolivia
NARRATOR: One of the poorest countries in Latin America and with a history of 189 military
coups, Bolivia was also one of the most unstable.
JORGE QUIROGA, President, Bolivia: When I was going through college in Texas, the first
question you'd be asked is "Who's the president of Bolivia this week?" Second
question down the road was "You're from Bolivia -- what's the inflation rate in
Bolivia this week?," because we had galloping hyperinflation that destroyed our
GONZALO "GONI" SANCHEZ DE LOZADA, President, Bolivia, 1993-1997: We found that
Bolivia was the seventh highest inflation in the history of man.
JUAN CARIAGA, Finance Minister, Bolivia, 1986-1988: Twenty-three thousand, five hundred
percent. Prices increased by the hour.
NARRATOR: The cost of food and clothes kept increasing. Before it was all over, the total
inflation averaged 1 percent every 10 minutes.
JORGE QUIROGA: Seven out of 10 Bolivians live in poverty. The poor people get hurt even
more. They see their pockets being eaten away by inflation that is galloping around.
GONZALO SANCHEZ DE LOZADA: It's like a tiger, hyperinflation: If you don't kill it and you
only have one bullet, it'll eat you.
NARRATOR: 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 petrodollars.
ARNOLD HARBERGER: So here were the international banks with billions of dollars and
nowhere to earn interest on it. They discovered Latin America.
GONZALO SANCHEZ DE LOZADA: We were offered unreasonable amounts of money. These banks who
were very unwise in their lending policy came to the happy conclusion that countries don't
go broke. It's true, but sometimes they don't pay.
MOISES NAIM: Guess what? One day, these countries could no longer afford to repay the
NARRATOR: In 1982 a financial crisis in Mexico triggered a chain reaction that caused the
1980s to be known as Latin America's "lost decade".
JOSEPH STANISLAW, Author, Commanding Heights: 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 in the country. If you can't collect taxes, you've got to make the
money up somehow, so they just printed it.
GONZALO SANCHEZ DE LOZADA: Bolivia was a basket case. We were considered hopeless. We had
help from nobody. We were totally alone. The World Bank had closed its office, the IMF had
pulled out its representative, and the American government and other friendly nations
wouldn't answer the telephones.
Onscreen title: Harvard University, USA
NARRATOR: At 29, economist Jeff Sachs had just become one of Harvard's youngest full
JEFFREY SACHS: 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 Bolivians.
NARRATOR: The Bolivians had come to Harvard to take part in a seminar on the
hyperinflation that was ravaging their country.
JEFFREY SACHS: I was absolutely fascinated, made a few observations. Somebody in the back
of the room piped up and said, "Well, if you think you know what to do, you come to
When I got to La Paz in July 1985, the inflation rate was about 60,000 percent. It was an
extraordinary and terrifying thing to see, actually. It was a society at the edge of the
NARRATOR: Bolivia's politicians were paralyzed. Only one man seemed to know what to do.
JEFFREY SACHS: I met a man at a cocktail party one of the evenings at work. I didn't know
him at all. I introduced myself. He said, "What are you doing?" I said,
"Oh, I'm writing an economic plan for the next government."
GONZALO SANCHEZ DE LOZADA: And I said, "I'm very, very pleased that you're studying
this, because we're going to beat these guys, and you can come and work for us." So
they all laughed.
JEFFREY SACHS: He said: "Oh, that's very interesting. What do you have in mind?"
And I described a few elements, basically how to stop hyperinflation. And he said:
"No, no, 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 we're in." I wasn't sure whether he was provoking me, whether he
was kidding, whether he was sober, whether he knew what he was doing. It turned out that
this was Goni, Gonzalo Sanchez de Lozada -- a genius.
NARRATOR: Goni's party did win the election, and he became
minister of planning. He told the president that Bolivia was running out of time.
JUAN CARIAGA: 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."
GONZALO SANCHEZ DE LOZADA: There was a big discussion whether you could stop a
hyperinflation or an inflation period by taking gradualist steps. In this Jeff Sachs was
influential. He said: "All this gradualist stuff just doesn't work. When it really
gets out of control you've got to stop it, like a medicine. You've got to take some
radical steps; otherwise your patient is going to die."
NARRATOR: To avoid leaks, they worked at home. Every few days, Goni reported to the
GONZALO SANCHEZ DE LOZADA: We said: "Look, boys, you've got one chance. And remember,
as Machiavelli said, 'It's all the bad news at once, the good news little by
little.'" So he said, "Get it all done." Shock therapy is get it over, get
it done, stop hyperinflation, and then start rebuilding your economy so you achieve
NARRATOR: In August 1985, Goni went public with a program called "shock
JUAN CARIAGA: It caught everybody by surprise. It had great credibility. It was a shock.
NARRATOR: Shock therapy spelled the death of dependency theory. Government spending was
slashed. Price controls were scrapped. Import tariffs were cut. Government budgets were
JUAN CARIAGA: We didn't use highly sophisticated economic theory to deal with
hyperinflation. We just used 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.
NARRATOR: 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.
DANIEL YERGIN: 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 professor, who actually used
to teach the dependency theory, launched a program of economic reform that looked a lot
like shock therapy.
DANIEL YERGIN: Argentina was suffering from 20,000 percent inflation and the new president
of that country said, you know, we've seen this movie before.
DOMINGO CAVALLO, Economy Minister, Argentina, 2001: Pro-market reforms could be
implemented under a democracy, and we demonstrated that it was possible here in Argentina.
NARRATOR: All across Latin America, governments began to sit up and take notice.
GONZALO SANCHEZ DE LOZADA: 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.
JEFFREY SACHS: In late 1985, as we were struggling late into the night with a 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
NARRATOR: 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.
JEFFREY SACHS: I was approached by a Polish government official
who had watched the Bolivian reforms, and then had seen the work I had done in Argentina
and Brazil. He finally asked me would I go to Poland and help.
Onscreen title: Warsaw, Poland
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.
NARRATOR: Sachs arrived on the very day that roundtable talks agreed there should be free
elections in Poland.
LECH WALESA: The situation was more than dramatic. One can change a political system
overnight, but an economic system needs years.
DANIEL YERGIN: Whenever Soviet power was challenged in Eastern Europe, the response was
very clear. It was tanks; it was the Red Army. That was the case in Berlin in 1953,
Budapest in 1956, Prague 1968. But the answer was different in Warsaw in 1989. Solidarity
won 99 out of 100 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 the fall of the Berlin
Wall. One country after another broke free of communism -- Poland, Hungary,
Czechoslovakia, Romania. 1989 was truly a miracle year.
NARRATOR: Poland was free now. Solidarity had to liberate the Polish economy. Late one
night Sachs met the Solidarity economist Jacek Kuron in a Warsaw apartment.
JEFFREY SACHS: I was trying to explain how you get out of this mess that the communist
system had left behind. Every couple of minutes he would pound on the table, "Pah,
pah, pah" -- "Yes, yes, yes, I understand." And we'd gone on -- "Pah,
pah" -- and it was very, you know... it was really exciting. We went on for a few
hours like this. I was exhausted. The room was filled with smoke, and he said: "Okay,
clear. Write 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." "No, tomorrow morning I need
the plan." I laughed, and he said, "I'm absolutely serious; I need this written
We wrote up a plan that night and delivered it the next morning. They distributed it to
the Solidarity members of the Parliament.
NARRATOR: Like Sachs, Solidarity's new finance minister, Leszek Balcerowicz, believed
transition had to be rapid and massive.
LESZEK BALCEROWICZ, Finance Minister, Poland, 1989-1991: Just after breakthrough, there is
a short period, a period of extraordinary politics. By definition, people are ready to
accept more radical solutions because they are pretty euphoric of freshly regained
freedom. One could use it only in one way, by moving forward very, very quickly.
JOSEPH STANISLAW: Poland decided to do what Bolivia did, to introduce shock therapy, cut
back on government expenditure and try and introduce a market system and see if it could
NARRATOR: Prices almost doubled, and shortages didn't end. All Balcerowicz 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.
LESZEK BALCEROWICZ: I was going for a walk, and we were looking at the prices in the
shops, the prices of eggs.
NARRATOR: His aides told him to concentrate on the price of eggs. If eggs appeared, if
eggs got cheaper, the market would be working. Eggs did appear. And then the price of eggs
began to fall.
LESZEK BALCEROWICZ: And I remember that very important day when the prices of eggs are
falling. This was one of the signals that the program, the stabilization program, is
NARRATOR: But reforming state-owned heavy industries would prove
a much bigger challenge.
LESZEK BALCEROWICZ: Once Poland became free, one of the problems I have to face was a
fight about privatization.
DANIEL YERGIN: The big problem was the old industries inherited from the communist past,
and there were wrenching problems of unemployment, of making them efficient, keeping them
running. And that's where you saw a lot of the pain.
NARRATOR: Making overmanned state-owned industries efficient or profitable meant
wide-scale layoffs for Poland's blue-collar workers.
JAN BIELECKI, Prime Minister, Poland, 1991: 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.
NARRATOR: Solidarity began to lose support as workers felt the pain of reform.
JEFFREY SACHS: I was asked to go to some factories, to meet with workers to try to explain
what my vision of this might be.
FACTORY WORKER: In the beginning we were made to believe that it wouldn't take long for
things to get better.
FACTORY WORKER: Sachs gave us a rosy vision for the future of our economy.
ZYGMUNT WRZODAK, Union Leader, Ursus Tractor Factory: We soon found out that the program
imposed on us from the outside most harmed precisely those Poles who had contributed so
much to political freedom.
NARRATOR: But elsewhere, the market was flourishing. Tens of thousands of small businesses
sprung up, and the Polish economy began to boom.
JAN BIELECKI: 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 it. When the Polish people finally got that opportunity, they took the chance. They
used the chance.
NARRATOR: At the Soviet embassy in Warsaw, a special observer
from Moscow had been monitoring the economic reform.
GRIGORY YAVLINSKY: The Soviet embassy in Warsaw had a feeling that this was a disaster for
them. They didn't want to send my telegrams to Moscow. I was describing what was going on
there, and they would completely disagree. I was very supportive, and they were very
negative. I was sending the analysis to Gorbachev. "Balcerowicz is doing the right
thing for Poland" -- that is what I was saying.
NARRATOR: Gorbachev asked Yavlinsky to write up a plan for radical economic change.
GRIGORY YAVLINSKY: I hoped to do in a year and a half as much as possible to make a
transition from the Soviet economy to the market economy. I understood we should move as
quickly as possible
NARRATOR: The U.S. threw its moral support behind the free-market reforms.
JAMES BAKER, U.S. Secretary of State, 1989-1993: We want to learn a little more about Mr.
Yavlinsky's 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.
NARRATOR: But Gorbachev shrank from shock therapy. The Yavlinsky plan languished on his
MIKHAIL GORBACHEV: Poland 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.
DANIEL YERGIN: Gorbachev was looking at Poland. 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?
Onscreen title: Beijing, China
NARRATOR: In 1989, the year the Berlin Wall fell, Gorbachev visited Beijing. As he
arrived, protestors were gathering in Tiananmen Square. In China, too, the Communist hold
on power looked unsure. But Gorbachev found the Chinese economy was being transformed
under its leader, Deng Xiaoping.
DANIEL YERGIN: Deng Xiaoping 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.
NARRATOR: Deng had been impressed by the success of the Southeast Asian economies, in
which overseas Chinese were so prominent.
LEE KUAN YEW, Senior Minister of Singapore: They were lucky that after Mao died, Deng
Xiaoping opened up China. He had to fight his own conservatives, the orthodox Communists
who were terrified that this meant dismantling the socialist state that they were
DANIEL YERGIN: Deng Xiaoping said: "Don't worry. We're not pursuing capitalism; we're
pursuing socialism with Chinese characteristics."
JOSEPH STANISLAW: 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 political control, but also have the benefits of the marketplace.
DANIEL YERGIN: By the mid-1980s, China embarked on its era of high economic-growth rates,
moving towards a market system, moving towards engaging with the world economy.
NARRATOR: Under Gorbachev, there had been intense argument on whether China's route to the
market was right for Russia.
JEFFREY SACHS: 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.
NARRATOR: Tiananmen Square showed how far the Communist Party was willing to go to hold
LEE KUAN YEW: Deng Xiaoping believed in restructuring before opening up. Glasnost and
freedom and transparency and so on -- that had to wait. First restructure, and restructure
under the old system by directives so that nobody can say no. Deng understood that if you
released these forces, unless you do it in a controlled way, the system will collapse. He
saved the country from an implosion like the Soviet Union.
JEFFREY SACHS: Many people say, "Why didn't Gorbachev do the China 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 percent 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 precent; 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.
LILIA SHEVTSOVA, Senior Associate, Carnegie Moscow Center: Gorbachev got stuck with
economic reform. He began too late, and his reforms were too cautious. He never touched
the foundation of the planned economy.
JEFFREY SACHS: This was a society that, while on the surface it looked stable, was more
like one of those cartoon characters that's run off the cliff, is stationary for the
moment, doesn't realize that it's about to reach a free fall. And it did go into that free
Onscreen title: Moscow, Soviet Union
NARRATOR: In August 1991, diehard Communists staged a coup. Boris 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
DANIEL YERGIN: The end of December 1991, Mikhail Gorbachev went on Soviet television. He
told his viewers that the Soviet Union would within a few days cease to exist legally.
After seven decades, the Soviet Union was over, it was finished, fade to black.
NARRATOR: The president of Russia was Boris Yeltsin. Unlike Gorbachev, Yeltsin wanted to
move fast. He chose the young reformer Yegor Gaidar as the man to turn Russia into a
DANIEL YERGIN: For Gaidar 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. Gaidar later said that it was like flying in an
airplane and going into the cockpit and finding no one at the controls.
YEGOR GAIDAR: It was clear to me that the country was not functioning, the economy was not
working, and that if nothing were done and if everyone feared that nothing would be done,
it would end in catastrophe, even a famine.
NARRATOR: Gorbachev's halfway reforms had left the economy in a tailspin. Every essential
was in short supply.
LILIA SHEVTSOVA: We have been queuing every day to get something --sugar, matches, salt.
The stakes really were very high. Economic situation was absolute disaster. Inflation was
about 20 percent a month. The shelves stood empty. The prices were skyrocketing. Everyday
life was the search for survival. Gaidar had to move very fast.
NARRATOR: Gaidar 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 his fellow
dissenter, 36-year-old Anatoly Chubais. Communist hard-liners nicknamed them the
"little boys in pink shorts."
Jeffrey Sachs now 36, was called on to advise on economic reform.
JEFFREY SACHS: I of course had the Poland experience in mind. Russia turned out to be
something quite different.
NARRATOR: The Parliament was dominated by Communists and other parties who opposed reform.
JEFFREY SACHS: Gaidar 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.
YEGOR GAIDAR: It is a pseudo market utopia.
The only thing I want to ask is understanding the gravity of the situation.
NARRATOR: Gaidar and his team wanted to use economic reform as a political weapon to smash
the old communist system before it destroyed them.
BORIS JORDAN: It was more a survival tactic -- how can we destroy the communist, 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?
NARRATOR: New Year's Eve, 1991. Next morning prices would be
freed. Gaidar's 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, Gaidar abolished the Soviet law that made private enterprise a criminal activity.
Gaidar believed that an effectively free market would put an end to shortages. He didn't
have long to wait.
YEGOR GAIDAR: I was driving to my office on Old Square, past Detsky Mir, the children's
shop, and I saw a huge crowd of people. I sent my aides to find out what was going on, and
they saw hundreds of people with various kinds of goods. They were holding a copy of the
decree on the freedom of trade while 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. I felt that we were right and that market forces worked, even in this
NARRATOR: The market may have been reborn, but for ordinary Russians reform meant higher
LILIA SHEVTSOVA: I hurried to a department store to look at the faces of Muscovites,
whether they would revolt, looking, you know, at all these skyrocketing prices, because
Gaidar felt that they would increase twofold. They increased twelvefold.
NARRATOR: Prices kept rising. The hard-liners who controlled the Central Bank made it much
worse. Their policies fueled inflation.
In Norilsk, factory workers like Yuri Khamutov were cleaned out.
YURI KHAMUTOV: Chubais talked about reform, but with him and with Gaidar, nothing
improved. We lived worse and worse and worse. So much for Gaidar's reforms. Many came
north to earn the money to buy a house, a flat, a car, to save a pension. And then in one
day you were left with nothing. It was so sudden, some people committed suicide.
GRIGORY YAVLINSKY: Inflation came 500 percent, 600 percent, 700 percent. The monies simply
went to the ashes, simply to nothing. The population was simply smashed by that
hyperinflation, and that undermined all kind of belief in the economic changes.
Onscreen title: New Delhi, India
NARRATOR: The collapse of the Soviet Union reverberated round the world. For India, it was
the end of a role model, the ideal of central planning shattered.
MANMOHAN SINGH: 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.
NARRATOR: Planned by bureaucrats and cut off from the world trade, India's economy had
grown stagnant, inefficient, and indebted. In 1991 India stared bankruptcy in the face.
P. CHIDAMBARAM: We were borrowing heavily. We had to mortgage our gold deposits. Our
growth rate had come to virtually zero. All this added to our very enormous crisis.
NARRATOR: 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.
MANMOHAN SINGH: Well, I said to him that we are on the verge of a 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.
NARRATOR: To the horror of his own political party, the prime minister gave the green
light for free-market reform.
P. CHIDAMBARAM: Well, the rank and file of the party were 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.
NARRATOR: India's Permit Raj was ended, state control reduced. Government subsidies were
cut, tariffs and trade barriers reduced, and regulatory licenses eliminated.
MANMOHAN SINGH: We got government off the backs of the people of India, particularly off
the backs of India's entrepreneurs. We introduced more competition to release the
innovative spirits, which were always there in India. The economy turned around much
sooner and much more deeply than I had anticipated. Indian industry boomed. We created a
record number of jobs, we were able to control inflation, and the economy was growing at
the rate of 7 percent per annum, so our critics were completely silenced.
Onscreen title: Moscow, Russia
NARRATOR: 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. In charge of this program of privatization was
Anatoly Chubais. The 70-year communist monopoly was about to be overturned. Russian
citizens were given vouchers which they could use to buy shares in privatized companies.
BORIS YELTSIN, President, Russia, 1991-1999: We need millions of property owners, not just
a few millionaires. All Russian citizens, workers, pensioners, and small children will be
given privatization vouchers worth 10,000 rubles.
NARRATOR: There was a problem: Not one company was ready to be privatized.
BORIS JORDAN, President, The Sputnik Group: 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.
NARRATOR: 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.
BORIS JORDAN: They knew that if they didn't at least launch the program by December 9,
1992, when the Congress of People's Deputies was getting together, the Communists were
going to kill privatization.
NARRATOR: The young reformers were in a race against time.
BORIS JORDAN: It was very tight. If there wasn't going to be privatization, there was
going to be no market economy.
NARRATOR: They narrowed the search down to a business on the edge of Moscow. It is not
exactly what Lenin would have called the commanding heights, but the Bolshevik Biscuit
Factory did bake Russia's favorite cookie.
BORIS JORDAN: We had to, I wouldn't say bribe -- we had to incentivize them. We gave
managers of their factories and the employees of the factories about 50 percent 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.
NARRATOR: On the day of the auction, fury at the economic reforms boiled over in
Parliament. Communist hard-liners forced a vote of confidence in Gaidar.
BORIS JORDAN: I remember it very well. We'd already opened the auction, and I was sitting
in the auction center. I was watching the television, and I watched Gaidar get removed.
NARRATOR: Communist opposition had forced Yeltsin to sacrifice Gaidar. His replacement,
Viktor Chernomyrdin, was a product of the old Soviet central planning system.
JEFFREY SACHS: There was no doubt that after Gaidar was thrown out of the prime
ministership at the end of 1992 that the level of corruption rose tremendously.
NARRATOR: 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."
JEFFREY SACHS: A lot of societies have corruption, but 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.
NARRATOR: The biggest companies, the major industries were still
controlled by their all-powerful managers, former Soviet "apparatchiks" 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.
GRIGORY YAVLINSKY: In Eastern Europe, the real democratic revolution happened. it was a
real replacement of the political elite. In Russia, the same people changed their jackets
and changed the portraits in the rooms, and instead of saying "communism" and
"Lenin" and "Five-Year Plan" started to say "market,"
ANATOLY CHUBAIS: I do remember one of the first meetings with the directors, which was
very tough, very tough. They hate the language we speak; they hate the face we have. They
hate everything which was connected with us. These guys were the real owners of the
country. I was fighting for the real commanding heights in terms of who runs the economy.
Who runs the economy, market or the Soviet directors?
NARRATOR: The vast factory complex at Norilsk was to become a major battleground between
the Red Directors and a new kind of Russian. Vladimir Potanin was a buccanneering
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.
VLADIMIR POTANIN, President, Interros Holding Company: I decided to become a businessman
at the moment when I understood that it is possible. I grew in a country where it was not
possible, and there existed even a special article in a penal court of the Soviet Union
which banished entrepreneuring activity.
NARRATOR: Potanin's 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 Norilsk meant going up against one of the most powerful of the old Red
Directors, Anatoly Filatov.
BORIS JORDAN: Filatov of Norilsk, the hardest guy, one of the most powerful men in Russia.
Potanin, who was at that time a relatively unknown person in this country, went up against
this guy. Norilsk Nickel was the test case.
NARRATOR: Potanin needed allies. These were the richest of the new entrepreneurs. They
came to be known and hated as "the oligarchs."
VLADIMIR POTANIN: By 1995, we had new business elite who in my opinion were efficient
owners and 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 let's say
NARRATOR: To break the power of the Red Directors, the oligarchs needed political support.
VLADIMIR POTANIN: It was politically very difficult to withdraw this power from the Red
Directors. Even the government and even Chubais were not strong enough to win easily this
NARRATOR: 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.
LILIA SHEVTSOVA: In the beginning of 1996, Yeltsin enjoyed only 5 percent of popularity.
He definitely needed financial assistance, financial resources from the rich people, the
NARRATOR: 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.
BORIS JORDAN: Potanin proposed a privatization program which today is still used. It's
exceptionally controversial, a loans-for-shares program, and 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.
NARRATOR: The oligarchs' money would help Yeltsin fight the presidential election. In
exchange, they wanted the commanding heights.
ANATOLY CHUBAIS: 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.
YEGOR GAIDAR: The point of the loans-for-shares deal was aimed at creating a critical mass
of powerful and influential businessmen whose primary interest would be to prevent the
Communists from coming back.
NARRATOR: With their media companies and wealth, the oligarchs backed Yeltsin's reelection
campaign. Singing and dancing endlessly across Russia, Yeltsin surged ahead in the polls
and to victory.
Potanin 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 $2.5 billion, Potanin paid $170 million.
VLADIMIR POTANIN: I felt a great feeling of victory. Several years before, it was even
difficult to think about struggling with Red Directors. The struggle was won by us, by
those who came who are younger, who are more active and more prepared for competition.
Many years later came feeling of a great responsibly for this, because when you win, you
become responsible for everything that is going on. but it came a little bit later.
NARRATOR: 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.
GRIGORY YAVLINSKY: The task was not to distribute the property between 10 personal
friends; there were no need for that. The task was to give the property to millions of
VLADIMIR POTANIN: 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
GRIGORY YAVLINSKY: The goals are justifying the means. That's how the Bolsheviks made the
revolution in Russia, and that is why it's disaster. Always when you are using the formula
that the goals are justifying the means, you are destroying the goals.
NARRATOR: 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, and
the stock market crashed. The Yeltsin era ended with his abrupt resignation on New Year's
Onscreen title: The New Century
NARRATOR: 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.
DANIEL YERGIN: It's breathtaking what's happened in the last 20 years or less. It's as
though the whole world has changed its mind. Everywhere -- in India, China, Asia, Latin
America, Europe, North America, and above all in the communist world -- governments have
retreated from the commanding heights of the economy.
NARRATOR: Having thrown off communism, the countries of Eastern Europe continued to
embrace free markets. Poland has flourished. What's driving Poland are two million small
businesses, almost all started after economic reform.
DANIEL YERGIN: Of all the cases of shock therapy around the world, that in Poland worked
just about the best. It really got the economy going.
NARRATOR: Businesses like Zofia Bielzyck's gym now employ over half of the country's
workforce and produce close to 75 percent of its total output.
ZOFIA BIELZYCK, Gym Owner: After 1990, many 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.
NARRATOR: In Latin America, the result of reform has been mixed. Chile continues to set
the pace. A democracy, it follows free-market policies and is one of the world's seven
fastest growing economies.
DOMINGO CAVALLO: The first democratic president after Pinochet maintained the reforms and
also tried to improve on them.
RICARDO LAGOS: It is not something of the right-wing parties nor the left-wing parties.
It's simply sound economic policies. To learn that took some time.
NARRATOR: Bolivia is still poor, but it has been growing.
GONZALO SANCHEZ DE LOZADA: Many people would say we're still poor, and 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.
CLIVE CROOK: I think there is some disillusionment in Latin America. 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, and now we
see a sort of financial collapse in Argentina.
DANIEL YERGIN: For several years, Argentina looked like the poster boy for economic
reform. It turned out that the reforms were quite incomplete. The country ran up huge
international debts, and in 2002 it had an economic meltdown.
CLIVE CROOK: 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.
NARRATOR: In India, Narayana Murthy 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.
JAIRAM RAMESH: Well, it did work. I think certainly it did work. And what is interesting
is that all the parties that criticized the party that introduce reforms are now taking
forward those reforms. So I think, you know, '91 to 2000 has shown that the economic
liberalization was started out of compulsion has ended up being a process that has been
driven by conviction.
P. CHIDAMBARAM: This has brought about a sea change. In fact, nobody in India today 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 now.
NARRATOR: 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 strengthened, and the oligarchs were
DANIEL YERGIN: 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 their reform legislation that should have been done five or six or seven
years ago has finally been enacted.
JEFFREY SACHS: I remain cautiously optimistic. But even if Russia gets out of this mess,
even if democracy survives, even if all of 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.
DANIEL YERGIN: The problems are still there -- the problems of inadequate health care all
the way to corruption. But it's a society that's changing. Putin sees Russia's future as
being part of the world economy.
LILIA SHEVTSOVA: 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, "Mum, can you tell me what Marxism is?" We spent only
10 years after collapse of communism, and my son doesn't know what communism and Marxism
NARRATOR: The world had indeed changed its mind. Capitalism was now the rule almost
everywhere. The stage was set for a single global market woven together by trade
technology and investment.
Globalization had begun.