Shock Therapy In Post Communist States
The collapse of communism in East Europe had major implications on the domestic economy of post-communist states. These States underwent a painful economic transition from the authoritarian socialist model of the economy to that of a democratic capitalist model. Central Asian countries, East European Countries, as well as Russia, adopted new policies which were heavily influenced and directed by the World Bank and IMF. This transition came to be known as 'Shock therapy'. Shock therapy includes the withdrawal of state subsidies and immediate trade liberalization within a country, usually also including large-scale privatization of previously public-owned assets.
The main features of shock therapy are:
- Shock therapy envisages a shift to a capitalist economy from the Soviet model of development.
- Privatization of state assets and corporate ownership is one of the key features of such policy.
- Privatization of the agricultural sector has been stressed by this policy.
- Shock therapy also ruled out any possibility of a "third way" or alternative to state-controlled capitalism.
- Shock therapy focused on the issue of development through trade and foreign direct investment.
- Opening up of the financial sector to private players as well as deregulation of markets was stressed by this policy.
- More importantly, the transition to capitalism in post-communist states also meant the existing trade alliances between countries of the Soviet bloc had to be broken, and now became more directly linked with the US and its allies.
Now, these states have been gradually absorbed into western economic systems and are dictated by policies of privatization and capitalism. The west has started to guide these countries on issues of public investment and economic recovery. Various multilateral agencies, such as the World Bank and the IMF, have played key roles in the development process of post-communist regimes.
Consequences Of Shock Therapy
The consequences of shock therapy were very negative and post-communist states had disastrous economic consequences.
One of the major consequences of this policy was it led to the virtual disappearance of large industries from Russia and other east European countries. The industrial system collapsed and 90 percent t of such industries were sold to private individuals and companies. Market forces played a key role in the restructuring of the industrial policies of the government. Many industries were undervalued and sold to private players at throwaway prices, leading some analysts to describe it as 'the largest garbage sale in history'. The value of the Russian currency ruble declined and the rate of inflation reached an all-time high. People lost all their savings. Unemployment too reached uncontrollable levels.
The independence from the USSR did bring about a certain degree of optimism for many post-communist states; their joy was short-lived because many of them soon got engaged in civil wars which had disastrous consequences for their society, economy as well as a polity. Terrorism and the growing involvement of external powers only complicated the scenario. The main conflict zones are :
- Chechnya, where separatists have been seeking independence from Russia. At times, this conflict has bled over into North Ossetia-Alania, Dagestan, and Ingushetia. The Beslan school attack in September 2004 is a brutal reminder to the world that the stability in the Former Soviet bloc is still a major challenge. Again, the brutal military assaults by the Russian forces against the Chechen rebels have led to human rights violations in this region.
- The Civil War in Tajikistan began in May 1992, and by June 1997 fifty to one thousand people had been killed in the conflict.