The results of shock therapy were catastrophic because the plan was hasty and myopic. The proponents of shock therapy in Russia, representatives from the IMF and US Treasury, attempted to run a market economy without things like a proper economic infrastructure (such as banks and firms which could and would operate without direct commands from a centralized authority), or legal/regulatory frameworks (such as securities and bank regulation). The shock therapists’ approach to initiating a market economy in Russia after the collapse of the USSR was similar in some respects to attempting to start an automobile without oil in the engine, or perhaps without even an engine. Furthermore, the plan, which the shock therapists had hoped would miraculously deliver Russia to a market system, was fraught with internal contradiction and impediments. For example two major processes of shock therapy involved rapid liberalization (price freeing) and stabilization (monetary policy reforms aimed at reducing inflation and increasing interest rates) which, when enacted in quick succession, impeded the third equally as crucial step in shock therapy, rapid privatization. Thusly, in summary, shock therapy did not work because A.) the economic components necessary for it to run were not present or at least not properly configured and B.) the system itself had inherent flaws thusly resulting in its own internal failure.
There are many things which should have been done differently to prevent the economic crises that befell Russia after the collapse of the USSR. Perhaps it would have been best if the idea of shock therapy had been scrapped altogether in favor of the programs proposed by the gradualists. (For details on these programs see page 141 of Joseph Stiglitz’s Globalization And Its Discontents, New York; W.W. Norton Company) On the other hand, perhaps shock therapy would have seen some degree of success if the economic infrastructure of Russia had been properly configured so as to readily and effectively accept the massive overhauls involved with a transition to a market economy.
Economic Shock Therapy in Post Communist Russia
ReplyDeleteThe results of shock therapy were catastrophic because the plan was hasty and myopic. The proponents of shock therapy in Russia, representatives from the IMF and US Treasury, attempted to run a market economy without things like a proper economic infrastructure (such as banks and firms which could and would operate without direct commands from a centralized authority), or legal/regulatory frameworks (such as securities and bank regulation). The shock therapists’ approach to initiating a market economy in Russia after the collapse of the USSR was similar in some respects to attempting to start an automobile without oil in the engine, or perhaps without even an engine. Furthermore, the plan, which the shock therapists had hoped would miraculously deliver Russia to a market system, was fraught with internal contradiction and impediments. For example two major processes of shock therapy involved rapid liberalization (price freeing) and stabilization (monetary policy reforms aimed at reducing inflation and increasing interest rates) which, when enacted in quick succession, impeded the third equally as crucial step in shock therapy, rapid privatization. Thusly, in summary, shock therapy did not work because A.) the economic components necessary for it to run were not present or at least not properly configured and B.) the system itself had inherent flaws thusly resulting in its own internal failure.
There are many things which should have been done differently to prevent the economic crises that befell Russia after the collapse of the USSR. Perhaps it would have been best if the idea of shock therapy had been scrapped altogether in favor of the programs proposed by the gradualists. (For details on these programs see page 141 of Joseph Stiglitz’s Globalization And Its Discontents, New York; W.W. Norton Company) On the other hand, perhaps shock therapy would have seen some degree of success if the economic infrastructure of Russia had been properly configured so as to readily and effectively accept the massive overhauls involved with a transition to a market economy.