Economy Perspective Politics

Shock Therapy

No, the article is not about the electroshock treatment mentally challenged people get.

When the Soviet Union collapsed, a number of independent states emerged from the ruins of the Union of Soviet Socialist Republic (U.S.S.R.). These states had their roots deep into the socialist system that had been set up by the U.S.S.R. Now that it was no more, they needed to look out for their own ambitions and agendas.

What is Shock Therapy?


Shock Therapy, is a set of policies, that help the newly independent countries to convert their socialist authoritarian government to a capitalist democratic government. Countries which opted for Shock therapy were aided and assisted by the International Monetary Fund (I.M.F.) and the World Bank. It was either opting for Shock Therapy or survive on your own without any kind of assistance. There was no third alternative.

Speed and the amount of time taken by the Shock Therapy varied from country to country but the basic goals and direction was similar.

It mainly focuses on converting the socialist authoritarian government into a capitalist democratic government and completing removing the roots of the Soviet Union and its systems. It also meant removal of government control of the industries and services and opening them up for private companies and privatisation. In terms of agriculture, the collective system of farming that was prevalent before was removed and privatized.

The most major and drastic change that came with shock therapy was the change in the policy towards foreign relations and trade with other countries. Previously, during the Soviet Union’s rule, all of the republics that came under it had trade relations between themselves only and not with any of the Western Countries. The Shock therapy involved abolishing all Soviet Union era trade agreement between the countries and establishing new trade relations, directly with the western countries. Western countries emerged as leaders in helping and directing governments in doing so.

What were the consequences of Shock Therapy?


Shock Therapy, however, did not lead the people into the Utopia of mass consumption society it originally promised it would. Instead it failed miserably and almost destroyed many countries, some unstable even now.

Taking Russia as the prime example, as it was the largest of the socialist states. The Shock therapy almost plunged the country into a state of instablity and division. The industries that were controlled by the government were put up for sale to private individuals and industries. These sales were carried out on basis of Market forces and not the government led industrial policies. These sales were considered as the biggest ‘garagle sale’ in the history. It virtually destroyed the industries of Russia.

The value of the Ruble also fell, along with it there was a rapid and large increase in the inflation rates, the people were pushed to their limits, lost their savings and put into poverty. The old collective system of farming had disintegrated and no alternative was there to take its place, which removed the food security that Russia had achieved. It had to import food, which was strainful to the economy and its GDP fell so hard, that its rate in 1999 was lower than that of 1989.

Also prevalent was the old system of public welfare, which too was withdrawn, consisted of government subsidies on various good and services, pushed the people even further into poverty. The intellectual manpower of the country was either affected deeply by poverty or moved out of the country, leading to almost no specialized manpower in the country. A mafia emerged in the country that started to grow and control the economic activites. Unlike during the Soviet era, post Soviet states like Russia were divided into rich and poor regions and the economic gap between the rich and the poor only kept increasing.

The development of a democratic government was not given the same importance as liberalizing economy and converting to capitalism. This was the case in many of the post-Soviet States like Russia. Constitution was designed and built in a hurry, but these states had a very powerful executive and a president that had almost all the powers. The democratically elected parliaments were relative very weak and almost had no say. Improper structure of the government led to internal political strifes among the people, civil wars and a lot of oppression of the people.

Though, as we know, states like Russia, didn’t disintegrate and they still exist. How did they manage to do so?


Around the year 2000, the economies of these states started to revive. This happened due to the countries (Azerbaijan, Uzbekistan, Russia etc) started to export their natural resources. These countries were major producers of oil, minerals and natural gas. This export allowed them to revive their economies to a certain extent.

Other countries benefitted from this too. Pipelines began to be constructed on a large scale and the countries through which these pipelines ran through brought in a source of revenue as rent had to be paid for constructing the pipeline through their lands.

Along with this, some amount of manufacturing also began in the country, but it wasn’t a very major factor but it did help them bit by bit.

In conclusion, Shock therapy was not a very positive maneuvere. It always led to disruption and violence in the countries that had to adopt it. Instead of it being an option as it should have been, it was posed as an ultimatum to the countries. Do or die.

Priyamvad Rai


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