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 global economy.

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 onCommanding
Heights: The Agony of Reform.

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Chapter 2: The Ghosts of Norilsk [4:27]

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 people."

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
West.

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."
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Chapter 3: Behind the Iron Faade [8:18]

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 arrest.

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 border.

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 can't.

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.
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Chapter 4: India's Permit Raj [3:04]

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 it.

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 crippled.

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
design.

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.
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Chapter 5: Latin American Dependencia [2:03]

(tango music)

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 back.

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.
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Chapter 6: Counterrevolution in Chile [3:30]

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 country.

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.
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Chapter 7: Chicago Boys and Pinochet [8:16]

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 controls.

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
damaging connection.

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 Chile.

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 1976.

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 feather me.

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 have been.
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Chapter 8: Heresy in the USSR [8:08]

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 the system.

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 inspiration.

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 decay.

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
enormous.

NARRATOR: Gorbachev's attempt to

restructure the economy was called
"perestroika."

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.
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Chapter 9: Poland's Solidarity [7:32]

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 making.

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 America.
back to top

Chapter 10: Bolivia at the Brink [7:07]

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 economic base.

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 debts.

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 professors ever.

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 La Paz."

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 precipice.

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.
 back to top

Chapter 11: Shock Therapy Applied [4:48]

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 president.

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 growth.

NARRATOR: In August 1985, Goni went

public with a program called "shock
therapy."
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 balanced.

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 after another.

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.
back to top

Chapter 12: The Miracle Year [6:57]

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
down now."

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 work.

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 working.
back to top

Chapter 13: Poland in Transition [2:39]

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.
back to top

Chapter 14: Gorbachev Tries China [7:17]

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 desk.

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 building.

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 onto power.

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 fall.
back to top

Chapter 15: Soviet Free Fall [4:52]

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 were numbered.

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 market economy.

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?
back to top

Chapter 16: Reform Goes Awry [4:26]

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
tortured economy.

NARRATOR: The market may have been

reborn, but for ordinary Russians reform
meant higher prices.
 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.
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Chapter 17: India Escapes Collapse [3:16]

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.
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Chapter 18: Russia Tries to Privatize [5:33]

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.
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Chapter 19: Property Becomes Theft [6:18]

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,"
"democracy," "freedom."

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 themselves.

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 struggle.

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 oligarchs.

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.
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Chapter 20: Closing the Deal [3:50]

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 people.

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 only way.

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 Day
2000.
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Chapter 21: A Decade of Radical Change [7:38]

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
reined in.

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 is.

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.

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